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...
I love your blog because it's so simple. Of course the problem is not enough income (poor income distribution)/too much debt. Asset prices are too high. (Hello! People earning $50K a year can't afford $600K houses or $40K cars!)
ReplyDeleteI don't really know much about economics or finance. I just started reading about the dollar and it's foundations about 4 years ago and I suddenly realized that the whole Ponzi scheme *could* crash. And rather than do that "10% of your savings" in metals thing, well, I went all in because it seemed like a good idea at the time. (I'm a really happy little pig now!)
Anyway, I'm really rather ticked at my elected officials at this point but I don't see anything I can do about it except vote for someone else in November. Unfortunately, this is the first time in my life where I've realized that both parties appear to be equally bad. America hasn't had many rebellions since the Tea Party so I don't know how we would handle one now-- but I do think we deserve one.
This bill to bailout the financial companies is a travesty and we shouldn't be supporting it. But where is the outrage? Given the facts, most Americans would rather roll over and have their tummies scratched. I'd much prefer it if we turned into snapping, snarling dogs instead!
Now if we could only find a way to shed a few billion surplus units of population we'll be all set.
ReplyDeleteWhere is the war, disease, famine or combination thereof that will appreciably impact population?
It's a wonderful vision you present and one I'd be grateful to see come to pass but it rests on an unstated assumption that the US would be willing to stop vacuumming up the world's resources and settle for self sufficiency. If that were the case their would be no need for 700+ foreign bases and a military budget equal to the rest of the world combined.
ReplyDeleteFor your uplifting vision to have a chance of germinating all those resources going toward achieving full spectrum dominance would have to be redirected to your more productive suggestions but McInsane says that he would freeze all spending except the military.
As long as the US wants to compete with the rest of the world's few billion surplus units of population for resources it will have to compete with them on wages.
But wouldn't the market do this on its own if it were more cost effective?
ReplyDeleteOr asked another way, which part of this vision is the current bottle neck that is preventing it from becoming a reality?
Your solution while logical, is untenable for the following reasons:
ReplyDelete- it involves abstinence, the antithesis of unfettered capitalism
- fat cats have to lose weight, not likely to happen unless under duress
- it requires a 'moral' viewpoint that humans are stewards of planet Earth, as opposed to exploiters
- the arrogance and incompetence of the last eight years has done its work
However, nature has its way of restoring balance.
We live in exciting times.
Thanks again for your idea's about the economy and the need to transform America. How this unfolds in the coming years is beyond my abilities but the world does have limited resources and that will force your concept into reality.
ReplyDeleteThai "Or asked another way, which part of this vision is the current bottle neck that is preventing it from becoming a reality?"
ReplyDeleteHabits. People don't like change. Especially people that have interest in the current game, for example, the crowd that is benefiting from the current bailout.
The only real chance for change is to have a strong leader in place when the fall happens to rebuild the future in his or her vision. And don't get me started on the importance of leadership again Thai.
Dink,
ReplyDeleteSome explanation on the constraints of the Fed's capacity:
http://acrossthecurve.com/?p=1731
Sounds great if you can persuade the megalomaniacs that run our political, military, financial and energy complexes to resign.
ReplyDeleteExcellent!
ReplyDeleteNow we have to wait for our supine elected representatives to raise themselves from 'ground level', or extract their heads from the delusional fog which envelopes their heads, so they can 'see' - as in, engaging in a meaningful intellectual manner with the matter in hand!
This is going to be interesting.
Keep on spreading the Good Word!
Brian P
Yoyomo,
ReplyDelete"Some explanation on the constraints of the Fed's capacity"
Appreciated! It seems the more I learn about the mechanics of the economy the more absurd and arcane it becomes.
Perhaps you could also take a stab at educating me on why the Democrats are voting with Bush on this? Its EXTREMELY unnerving to be agreeing with Republican senators and representatives...
Dink,
ReplyDeleteI can't figure why someone as "knowledgeable" as Barney Frank is going along with the scam but most members of congress are small town lawyers who don't have much insight into high finance (Okie is an exception) and are easily swayed by the leadership. Those big city boys like Schumer are Wall St whores when selling their votes and pimps when selling our future.
Hell, I'm a lot less optimistic about your solutions, because I don't really feel that the essential problem is too much debt vs. too little earned income.
ReplyDeleteI think that the latter is just a symptom of a much much larger problem that will not go away if we treat this crisis as just another crisis WITHIN the capitalistic framework.
This is a spiritual crisis.
As such it goes a long long way back.
It implies being able to imagine that money itself, you know, like currency, and the rest, is just one solution to the problem of exchanging "goods and services" (yuck, horrible way of phrasing it, sorry...)That there ARE other solutions. We just haven't been looking hard enough for them, or even considering that it might be possible to call capitalim and currency into question.
As indirect proof that this is a spiritual crisis, I ask you to look in the direction of the current presidential campaign.
Liberal (democratic...) reaction to Sarah Palin is, to put it brutally and ironically, totally irrational.
We are witnessing a titanesque combat between those defending the condemned citadel of Enlightenment thought (now almost totally exhausted and bankrupt, to my mind) and those who feel, irrationnally, but nonetheless correctly in my book, that Enlightenment thought has impoverished creativity, generosity, and other essential aspects of human life (hence the violent attacks on secular humanism). That those who ressuscitate irrational thought processes sound crass, infantile, manipulative is tragic.
So... in such a Miltonian saga, the future of capitalism, and even of the U.S. while we're at it, is really rather beside the point.
Sorry to wax philosophical, but these days there are so many thinkers with their noses glued to the page that the larger picture tends to get neglected.
Yoyomo,
ReplyDeleteI don't know which post makes me want to start drinking more, yours or Debra's. I'm seriously going to start looking into 3rd party candidates.
Debra#2,
ReplyDeleteAlthough he can't win, Ralph Nader is the best man in the race. For those who want to see a woman prez, Cynthia McKinney is one smart, tough cookie.
The problem with Nader is that I've seen him interviewed. I agree with some of his views, but he presents them in a very obnoxious manner. Ah well, ends justify the means.
ReplyDeleteGood catch, Debra 2 was actually a barely lucid Dink.
Dink,
ReplyDeleteIf you'd had to put up with as much stupidity/cupidity as Nader has for close to half a century you would also be somewhat irritable; can't the hadest working man in civics get a break?