For the past week, the economy has been in the spotlight. Looks as though it’s coming down with something. The federal government is going to be sending most of us some money in a few months, as a remedy. Borrowed money. Unfortunately, borrowing is a big part of what caused the illness in the first place. In the long run, more borrowing is probably going to make things worse.
Unfortunately, the American economy has become more and more like a Ponzi scheme over the past 20 or 30 years. Under the right conditions, the technology and managerial genius of American enterprise causes our economy to grow quite impressively. Unfortunately, we’ve decided to borrow and consume based on the assumption that those right conditions will go on forever. Borrowing and consuming have caused even more growth, which causes more borrowing and consuming, on and on like a snake eating its tail. No one has left any margin for error; not the federal government, not the mortgage market, not Social Security, not the stock market, not the average family . . . no one. No one thought to save for a rainy day, even though we’ve had rain before. It’s not just the real estate sector that has gone through a “bubble”; the whole American economy seems to have taken a bubble bath.
It looks as though the rain is starting to fall now; oil prices have gone up and don’t show any signs of coming down (although if our economy goes sour, they will). Real estate prices finally got so far beyond the underlying fundamentals of supply and demand that prices have stopped rising. Too many families signed big mortgages betting that real estate prices would continue their steady climb. They also bought big cars and lots of consumer goods on credit, thinking that the good times would never end. Now, it looks as if unemployment will start rising again, after remaining at historically low levels for over a decade. Hardly anyone is ready for that.
And then there’s China. China has been in the middle of this. China seems like our friend, selling us all kinds of consumer goods and electronic stuff at prices that are very low, and maintaining our ability to do that by loaning us back our dollars at low interest rates. But are they our friends? I think not. Personally, I think that the Chinese know our bad habits and have been shrewdly exploiting the USA’s frivolous ways to jump-start their own economy. Their population is about 4 times ours, and most of it is quite poor (our GNP is around 9 times theirs). However, if they could capture a big chunk of America’s demand for manufactured products for a few decades (as they are doing), they arguably could convert a large portion of their own population from isolated peasants into middle-class consumers.
If China can convert 1/3 or so of their population to middle-class levels, they will no longer need the USA as a market for their goods; their own internal economy can take over, as it will have gained similar purchasing power. At that point, the Chinese can leave us at the side of the road. Thanks, sucker; oh, and its time to repay all those debts that you owe us, no more new loans from us. Interest rates in the US will soar, and . . . well, things won’t be the same again. Our standards of living will start going down. And that’s going to cause a lot of political angst. It ain’t gonna be pretty.
Well, this isn’t going to happen right away. China isn’t ready to dump us just yet. They will probably act to help us get through the latest crisis, by not messing with our trade balance and continuing to purchase US Treasury notes (thus financing the rebate checks we will soon be receiving). For now, it’s in their interest to give their favorite junkie another fix. It buys them more time to do just what our economy did between the Civil War and the Korean War – convert from rural / agriculture to suburban / manufacturing and trade. This will happen faster for them; we were using canal boats and steam-powered railroads, whereby they are working with airlines and broadband Internet.
But the Chinese still need another 10 or 15 years to get a significant chunk of their nation out of rural poverty and up to western standards. And after that, they probably won’t immediately forget the lessons of frugality and savings and sacrifice, as we have done by now. Because of that, I think that American living standards will not get much higher and will then start to decline. The days of big houses and big SUVs and big spending sprees for the masses will fade. And at that point, the big gap between the rich and poor may finally become a political issue in America. Again, it ain’t gonna be pretty.
For now, though, the immediate crisis will probably come and go, although the impending recession may last a bit longer and go a bit deeper than the last two (1991 and 2001). Things will seem OK again in a few years, but will it last? I think that the intervals between future economic crises will get smaller, and the severity of those crises will get bigger. By 2025, I think it will be clear that the USA is not going back to the economic might that it enjoyed throughout the 1990s and again briefly in the mid-2000’s (and which it may yet taste again in the early 2010s). People then will look back with nostalgia on the Bush-Clinton-Bush-Clinton era, although the scholars will be busy then writing tomes about what went wrong.
But you don’t have to wait until 2025 to read about it. Here are some resources. James Fallows has a good, fact-driven article on the China situation in the January-February 2008 Atlantic Magazine. And for those of you without subscriptions to the Atlantic or who don’t want to schlep on down to the library to study a policy question (another sign of American decline!), here are some other articles available through the magic of the Internet:
1.) George Soros’ view of the current economic crisis, including the China situation;
2.) a reflection on how lack of old-fashioned virtues such as common sense and humility are involved in the current economic mess, by classical historian Victor Hanson; and
3.) a journalist’s report on the Davos conference and the sense of unease there about “America’s ability to right its own ship”.
4.) also, the New York Times has weighed in with a Sunday Magazine article entitled “Goodbye to American Hegemony”.
OK, but before I go, let me get specific and say what I think we’ve done wrong. I blame it on our leaders, but more so on the population in general and especially the college educated population, which should have known better (but are probably the worst offenders). Unfortunately, we get the leaders we deserve, and they’ve done our bidding quite diligently, by:
1.) Letting the gap between rich and poor get so wide; and making it worse by cutting taxes for the rich more so than for the middle class and poor.
2.) Doing away with all economic regulation schemes back in the 1980s and 1990s, instead of being selective about eliminating the anachronisms and extending regulation into new economic realms, while maintaining its flexibility as to minimize impact on growth
3.) Allowing our dependence on foreign oil to go on unchecked, after two clear warning signs in the mid 70s and early 80s; we clearly should have had an energy independence program on the scale of the space program of the 1960s.
4.) Allowing so many fuel-hungry SUVs and McMansions; and even worse, allowing so many sprawling housing developments and offices and shopping centers to be built that are entirely dependent upon auto transport; we’ve locked our nation into high oil consumption.
5.) Allowing our governments to operate at such huge deficits; yes, I am saying that taxes should have been higher, as we can’t slash most government programs; despite some inefficiencies and waste, most government programs have awfully good reasons for their being.
6.) Allowing our public education system to be weakened, and making college level education prohibitively expensive for more and more families (instead of less and less, which would stimulate the economy in the long run).
7.) Allowing our manufacturing sector to be swept away so thoroughly, causing the USA to become so terribly dependent upon the rest of the world for the basic stuff that we need, as well as the goodies that we enjoy. I agree that international trade causes everyone to become richer, when it works correctly; but our world frequently doesn’t work right, so I can’t help but wonder if we should have kept some of those factories and mills going, even though they are more expensive to run than the ones in Brazil and Korea.
[SIDEPOINT: American military and diplomatic policy have become very nationalistic; and at the same time, we have let our economy become extremely internationalized. To me, that sounds like an exposed left flank. Common sense would dictate that we find an equivalent balance between nationalist and internationalist approaches in all three realms.]
8.) Allowing federal subsidy for basic scientific research to continually decline.
9.) Labor unions got too greedy and were responsible for much of America’s decline in the 1970s; but our leaders should have let them learn their lesson and allowed them to become responsible partners with industry, instead of breaking them.
10.) Too much buying on credit and too little saving for rainy days (and maybe retirement)!!
11.) Homeland security costs are a significant drag on our economy, along with the wars in Iraq and Afghanistan. On first blush, the Afghanistan operations and the homeland security efforts seem quite necessary; a foreign enemy attacked us, and they will attack us again if we don’t do something. True. But see point 3 above; energy independence would go a long way towards lowering our vulnerability to radical Islamic jihad. Looking the other way while Israel continued to take the best lands away from the Palestinians didn’t help either. But the Iraq operation was truly self-inflicted injury.
12.) Overall, taking such a short-term, me-first, enjoy-now / pay-later, consumption-based view of life; the nation I would have preferred wouldn’t have been as rich as we are now, living standards would be somewhat lower (although still way above most of our neighbors); but it would have been fairer, more dependable, and more sustainable over the long haul.
(Obviously I couldn’t even be elected as the class hall monitor in a high school).
Jim,
Unfortunately, you are only too painfully correct in your analysis. My comments are basically to reinforce your own thoughts.
First of all, I don’t think the “young” people “get” it. By “young” I am here referring to people well into their thirties. (Or maybe the example to follow is a fluke–but I don’t think so.) A week or so ago, I heard a woman well into her thirties with a family of young children, a “big” (to my estimation) house, and all the stuff considered de rigueur by today’s generation(s) make a statement that convinced me she had no clue about the economy and it’s dire straits. She enumerated all the debt she and her husband were in and lamented the fact that even if they did want to sell their house, they probably would have to sell it for a loss make this statement: Well, the recession may last for ANOTHER YEAR (implying they would not make it thru that year). I thought, this woman has no clue. A REAL recession may last MANY years. Has not one of the young people studied history? Is it only the old folks who remember the recession that started in 1929 and that lasted through the 1930s, only got worse as it went along, and even worse, it took a war (WWII for those who may have no clue) to get the country OUT of the recession. The war forced people into economizing with rationing of products that went to the war effort, which war effort then gave everybody (here read all the men who did not go to war and especially women who took the place of the men in jobs) money–but NO PLACE to spend the money as almost everything was rationed or unavailable; enforced saving was the result.
The young people (and here I reveal my age) of today seem to take for granted that they live on borrowed money–credit. I actually had a phone call from a young person at some credit card company toting the “benefits” of obtaining one of their cards. One “benefit” was that I could transfer balances from any other credit cards I had. When I told the young person that I had NO balances to transfer, she was in disbelief: “You DON’T?” Right behind that statement was: Doesn’t EVERYBODY have balances to transfer?
I’ve been amazed in my lifetime how many people I’ve known who live what I call on the “edge.” That is, they have huge houses, big, fancy cars, the latest massive TV adorning their living room walls, etc.–all of which they proudly display with an “I have all this and you don’t” attitude. But then as one gets to know more about them, these people are never sure if they will be able to make next month’s payment(s) on all these things. Which thing will be repossessed first seems to be the major question in their mind. OR will they pay for the TV and have the electric shut off–a conundrum that!
Then there is Warren Buffet making the statement that HIS income is taxed at the 17% level; and his secretary who makes $60,000 a year (a paltry sum I’d say for him to be paying her), is in a 25%+ tax bracket. What’s wrong with that picture? Bill Maher explained most graphically the so-called “trickle down” theory: Miming a person thirsty for water, desperately hoping for a drop–the “trickle down” theory in reality.
Your point about the unions is well taken–allow them to become responsible partners instead of breaking them. But I wonder: Will unions then start looking out for the institution as institution? Or will they still keep the welfare of their members their prime concern? I think of the Teamsters (how many years ago now?) who turned on their own members, refusing them their pensions because the union officials had other plans for the monies involved.
And here I have to take an even greater digression than I have in anything above: The present writers’ strike has me wondering. I’ve seen too many instances where groups of employees who are paid much above the level of the poor people of today’s society go on strike only to have management wait them out until the money they will give the strikers is “made up” in loss of work; then “conces
Comment by Anonymous — January 26, 2008 @ 11:53 am
Jim,
Unfortunately, you are only too painfully correct in your analysis. My comments are basically to reinforce your own thoughts.
First of all, I don’t think the “young” people “get” it. By “young” I am here referring to people well into their thirties. (Or maybe the example to follow is a fluke–but I don’t think so.) A week or so ago, I heard a woman well into her thirties with a family of young children, a “big” (to my estimation) house, and all the stuff considered de rigueur by today’s generation(s) make a statement that convinced me she had no clue about the economy and it’s dire straits. She enumerated all the debt she and her husband were in and lamented the fact that even if they did want to sell their house, they probably would have to sell it for a loss make this statement: Well, the recession may last for ANOTHER YEAR (implying they would not make it thru that year). I thought, this woman has no clue. A REAL recession may last MANY years. Has not one of the young people studied history? Is it only the old folks who remember the recession that started in 1929 and that lasted through the 1930s, only got worse as it went along, and even worse, it took a war (WWII for those who may have no clue) to get the country OUT of the recession. The war forced people into economizing with rationing of products that went to the war effort, which war effort then gave everybody (here read all the men who did not go to war and especially women who took the place of the men in jobs) money–but NO PLACE to spend the money as almost everything was rationed or unavailable; enforced saving was the result.
The young people (and here I reveal my age) of today seem to take for granted that they live on borrowed money–credit. I actually had a phone call from a young person at some credit card company toting the “benefits” of obtaining one of their cards. One “benefit” was that I could transfer balances from any other credit cards I had. When I told the young person that I had NO balances to transfer, she was in disbelief: “You DON’T?” Right behind that statement was: Doesn’t EVERYBODY have balances to transfer?
I’ve been amazed in my lifetime how many people I’ve known who live what I call on the “edge.” That is, they have huge houses, big, fancy cars, the latest massive TV adorning their living room walls, etc.–all of which they proudly display with an “I have all this and you don’t” attitude. But then as one gets to know more about them, these people are never sure if they will be able to make next month’s payment(s) on all these things. Which thing will be repossessed first seems to be the major question in their mind. OR will they pay for the TV and have the electric shut off–a conundrum that!
Then there is Warren Buffet making the statement that HIS income is taxed at the 17% level; and his secretary who makes $60,000 a year (a paltry sum I’d say for him to be paying her), is in a 25%+ tax bracket. What’s wrong with that picture? Bill Maher explained most graphically the so-called “trickle down” theory: Miming a person thirsty for water, desperately hoping for a drop–the “trickle down” theory in reality.
Your point about the unions is well taken–allow them to become responsible partners instead of breaking them. But I wonder: Will unions then start looking out for the institution as institution? Or will they still keep the welfare of their members their prime concern? I think of the Teamsters (how many years ago now?) who turned on their own members, refusing them their pensions because the union officials had other plans for the monies involved.
And here I have to take an even greater digression than I have in anything above: The present writers’ strike has me wondering. I’ve seen too many instances where groups of employees who are paid much above the level of the poor people of today’s society go on strike only to have management wait them out until the money they will give the strikers is “made up” in loss of work; then “concessions” are made. I’ve always wondered how and why it is that the strikers can’t figure out that in the end they either break even or lose money. Strikes really only work when the employees have nothing to lose by striking, i.e., when their wages are so low as make the strike a worthwhile effort in terms of the money that will come to the employees from the strike.
Recently, I heard a comment on the writers’ strike to the effect that, frankly, nobody really cares if the writers actually come back to work. First of all, shows that are currently on the air (Jay Leno comes to mind) seem to have gotten better with no writiers. (Well, that’s my opinion. Shows WITH writers seem to somehow be “the same old thing.”) With regard to whether all the concern about whether the Oscars will go on as scheduled or not: Frankly, I’m tired of hugely rich people with massive celebrity for actually very little that they really do praising others of the same group–Aren’t we all WONDERFUL!! Narcissism at its zenith. But I digress.
As to the war we are currently engaged in: I’ve noticed that all the political bickering has simply wiped out any mention of what is going on in Iraq; Iraq seems off the radar. I refuse to believe that Iraq is a non-issue.
And just recently I read (forget where) that when GWB came into office, he had in mind to topple Saddam Hussein because of the attempt on GHWB’s life during the father’s term in office. So, basically, it seems GWB used the attack on our country to settle what in effect was a kind of “family feud” between the Bushes and Hussein. How could GWB be so (what’s the word?)–a descriptive word seems not to exist in this situation. But now that I think about it: How about uber-narcissism? Me, me, me–an inability to see the real issue as all is obscured by the “ME concept”?
And Osama bin Laden remains at large, probably laughing his head off at how our country has totally missed the point. I’m dismayed that the Iraq war has gone on for longer than WWII did. I remember that war. It was terrible; yet here we are in an even worse situation, and our leaders had a family feud to settle… As to the very REAL attack on our country, so very little has been done about that.
And as to the Palestinians: There is so much wrong on both sides in the Israeli/Palestinian conflict–but the inability of the Israelis to see the gross injustice they inflict on the Palestinians (as one small example, the walls erected to close the borders that prevent the Palestinians from obtaining work and/or staples of life can only fuel the fire of the problems between the countries). As I think about the situation there, the gross injustice foisted upon the Native Americans by the white settlers comes to mind–forcing entire nations on to unproductive lands and then preventing them from obtaining even the basic necessities of life.
One wonders: Is there no one at all who learns from history? Is there no one on the face of the earth who can think of someone besides him/herself? I’m sometimes dismayed at the good that is actually done by some–because it always comes back to: Look what I’VE done. I’ve heard this description of the narcissistic generations (yes, that last word is plural): “Well, enough about me. Now tell me, what do YOU think about ME?” A perfect description of our society.
A narcissitic society, with no sense of discipline (have to have everything now on credit rather than deprive oneself of something even for a short time), clueless with regard to the reality of consequences–my description of what is wrong with our society.
And I have not addressed any of the issues with regard to the IMbalance of trade. China, for sure, has no care for the U.S. It’s looking out for itself, no doubt about that.
And I’m dismayed that eight years ago, when Clinton left office, (and I thought, well the country should be in good shape for a while) the budge
t was not only balanced but had a surplus. My only answer to the terrible debt the country has amassed in these eight years is that GWB has the “child of the rich” syndrome: just spend as much money as you want because there’s always enough. And then again, he’s one likely of the clueless.
And then I hope that this is not just another “rant.” But I’m afraid it is as my comments surely are not going to change anything. Is this where HOPE comes it? Hope that eventually our country will come to its senses?
MCS
Comment by Anonymous — January 26, 2008 @ 11:53 am
Jim,
Unfortunately, you are only too painfully correct in your analysis. My comments are basically to reinforce your own thoughts.
First of all, I don’t think the “young” people “get” it. By “young” I am here referring to people well into their thirties. (Or maybe the example to follow is a fluke–but I don’t think so.) A week or so ago, I heard a woman well into her thirties with a family of young children, a “big” (to my estimation) house, and all the stuff considered de rigueur by today’s generation(s) make a statement that convinced me she had no clue about the economy and it’s dire straits. She enumerated all the debt she and her husband were in and lamented the fact that even if they did want to sell their house, they probably would have to sell it for a loss make this statement: Well, the recession may last for ANOTHER YEAR (implying they would not make it thru that year). I thought, this woman has no clue. A REAL recession may last MANY years. Has not one of the young people studied history? Is it only the old folks who remember the recession that started in 1929 and that lasted through the 1930s, only got worse as it went along, and even worse, it took a war (WWII for those who may have no clue) to get the country OUT of the recession. The war forced people into economizing with rationing of products that went to the war effort, which war effort then gave everybody (here read all the men who did not go to war and especially women who took the place of the men in jobs) money–but NO PLACE to spend the money as almost everything was rationed or unavailable; enforced saving was the result.
The young people (and here I reveal my age) of today seem to take for granted that they live on borrowed money–credit. I actually had a phone call from a young person at some credit card company toting the “benefits” of obtaining one of their cards. One “benefit” was that I could transfer balances from any other credit cards I had. When I told the young person that I had NO balances to transfer, she was in disbelief: “You DON’T?” Right behind that statement was: Doesn’t EVERYBODY have balances to transfer?
I’ve been amazed in my lifetime how many people I’ve known who live what I call on the “edge.” That is, they have huge houses, big, fancy cars, the latest massive TV adorning their living room walls, etc.–all of which they proudly display with an “I have all this and you don’t” attitude. But then as one gets to know more about them, these people are never sure if they will be able to make next month’s payment(s) on all these things. Which thing will be repossessed first seems to be the major question in their mind. OR will they pay for the TV and have the electric shut off–a conundrum that!
Then there is Warren Buffet making the statement that HIS income is taxed at the 17% level; and his secretary who makes $60,000 a year (a paltry sum I’d say for him to be paying her), is in a 25%+ tax bracket. What’s wrong with that picture? Bill Maher explained most graphically the so-called “trickle down” theory: Miming a person thirsty for water, desperately hoping for a drop–the “trickle down” theory in reality.
Your point about the unions is well taken–allow them to become responsible partners instead of breaking them. But I wonder: Will unions then start looking out for the institution as institution? Or will they still keep the welfare of their members their prime concern? I think of the Teamsters (how many years ago now?) who turned on their own members, refusing them their pensions because the union officials had other plans for the monies involved.
And here I have to take an even greater digression than I have in anything above: The present writers’ strike has me wondering. I’ve seen too many instances where groups of employees who are paid much above the level of the poor people of today’s society go on strike only to have management wait them out until the money they will give the strikers is “made up” in loss of work; then “conces
Comment by Anonymous — January 26, 2008 @ 11:53 am