Some people who read and comment on this blog ask what is my "solution" to the most crucial problem of our economy: too much debt vs. low earned income. I thought I had provided a broad outline, but let me now present a more comprehensive one.
A few initial points:
A few initial points:
- First, let's agree that this is the problem. That's not as self-evident as you may think; for example, most denizens of Wall Street and Washington (and many other financial centers and capitals) strongly believe that the root cause of the current crisis is low asset values, e.g. low home prices. This is evident from their actions thus far, which are all directed at supporting asset prices. This knee-jerk reaction also saves their own bacon from being thrown onto the sizzling skillet. (How very convenient..)
- Assuming you agree that this is the fundamental problem, the solution becomes obvious: we must reduce debt and/or raise earned income. Ideally we should do both concurrently in order to restore balance as quickly as possible.
- In close parallel, let's also agree that we are reaching the limits of our current energy-intensive, growth-at-all-costs socio-economic model; indeed, I strongly believe we have already exceeded them. In some ways, the tremendous expansion of debt vs. earned income proves this point: debt has allowed us to keep consuming, borrowing from tomorrow that which we cannot earn today.
- Therefore, the "solution" - what I term "The Alternative" in this post's title - must perforce involve a fundamental, structural shift in our socio-economic structure. There are already abundant hints around that many people "get it": several countries (e.g. Germany) are rapidly shifting to sustainable energy sources; organic/bio food and other consumer goods are gaining ground fast, not only because they are healthier, but also because they are economically more sustainable. Popular media are increasingly focusing on such issues.
We are presented with:
- A problem: too much debt vs. income and,
- A need: to transform our Permagrowth society into a more sustainable one.
3. The process of socio-economic transformation can create millions of well-paid jobs in the technology and manufacturing sector, plus all the ancillary areas like education and servicing, and it will do so for decades. A crucial key is localization and distributed production of goods and services, i.e. a return of the "local" vs. the "global" economy.
Globalization may remain a factor in some sectors, but distributed and localized production of energy, commodities and manufactured goods means it will recede as a broad force shaping the new era.
The exact policy details need to be worked out as we go along, but it is significant to note that such mainstream popular policy shapers as Thomas Friedman are already jumping on this bandwagon. His new book is called Hot, Flat and Crowded and advocates exactly such a solution. I feel vindicated, to say the least...