BusinessWeek’s Michael Mandel writes:
Over the past ten years, the S&P 500 is down 50% adjusted for inflation (February 17, 1999 to February 17, 2009). By my calculation, the stock market was down roughly 50%, adjusted for inflation, in the worst ten years of the Great Depression (September 1929 to September 1939). When you add in the fact that real wages were stagnant over the past ten years and debt soared, I think we will look back at the last ten years as a decade of despair. As an optimist, I’m going to bet on the next ten years as being better. Any takers?
The comments are extremely interesting – a quick sampling:
- Our problems are structural, and there’s still a huge force behind the status quo.
- If the last 10 years was just an accumulation of massive debt and stagnating salary, then the next decade going to be hell on Earth!!
- What’s held us back is tech, tech is the next logical step for this economy.
- I would argue that the last decade was one in which we tried to maintain a standard of living way beyond our means by massive borrowing and that the next decade will be the tough one because we are in the beginning stages of having to pay the piper. In the long run we will have to learn to live within our means…
- [Y]ou are touching on the essential question of the postmodern economy: how do we create enough new consumption markets to keep everybody employed?
Agreed: The essential question. It’s not just tech or even the creative destruction of industries. Economic recovery will require a massive shift in how and where we live. Breathing life back into the industries, behavior patterns, and lifestyle arrangements of the old, fordist order won’t work because it simply cannot create new demand and consumption patterns. We actually need to reduce the costs of the old fordist housing, energy, and transport nexus so that these new markets can open. Until we begin to understand this, and think and act – and design public policy with this in mind – we will go absolutely nowhere. Why such a massive failure of intellect and imagination on this score?
February 19th, 2009 at 10:36 am
Don’t you think these new ’stimulus’ packages are just a continuation of our government trying to maintain a standard of living way beyond out means? Our grandchildren will be paying down this debt. The Nat’l debt just hit $10T back in October and we’re not too far from $11T now ($10,789,783,760,341.41 as of yesterday).
I completely agree that we’ll have to learn to live within our means, but I see these government stimuli (Freddie & Fannie Bailout ($200B), TARP ($700B), ARRA (~$900B), the upcomingMortgage Bailout ($75B + $200B more for Freddie and Fannie), plus who knows what else (Total of the above – not including interest = $2.075 TRILLION)) as even more blatant examples of “massive borrowing” that help ‘maintain’ a standard of living we can’t afford.
A recession is simply a market correction and we need to let the market correct.
February 19th, 2009 at 10:56 am
Who’s “we” in your last sentence, Jeremy?
It’s simple from an economic perspective, sure, but what about the livelihoods that a “market correction” will make unbearable, for no fault of their own other than following the carrots that were dangled in front of them?
The wealthy and privileged will be cushioned from the heaviest of blows, as always – but what about those stuck at the arse-end of regions that are going nowhere?
So try getting rid of “simply” and “need” from the last sentence and replacing them with something a little more just. As Richard points out in the post, we need to rip up the rule book and accept that going back to old Fordist systems is unsustainable – that Fordist system that relied on consumption to provide jobs for everyone.
A “market correction” won’t replace those jobs because the “we” of your sentence will be governments and minority establishment interests who are keen to look after themselves, not of the vast majority. So the answer isn’t entirely “market forces”, which are largely fictional anyway.
The social enterprise model based on a triple bottom line is one reason for optimism. Co-operatives, increased reliance on family and community networks for in-kind and local goods and services also offer plenty of scope for recovery on a smaller scale.
Essentially a paradigm shift away from economic “growth” based on GDP per capita to incorporating social and environmental costs as well wouldn’t go amiss.
February 19th, 2009 at 11:29 am
I suppose that the ‘we’ I refer to is the government. Let’s also go ahead and take out ’simply’ and ‘just’ from my last sentence as well.
The main point I was trying to make was that, yes, any economic downturn is rough. No question about it. People will lose their jobs (and I know I’m not immune to that either) and the American people won’t be able to live their lives the same way they have over the past decade.
However, I think that all of this fiscal stimulus is leading us in th the wrong direction. Letting the market correct WILL be painful, no doubt, but the correction will be much more swift than if we (the government) artificially prop up businesses who made poor decisions (see the US auto industry) and inject enormous amounts of money into circulation that did not exist before.
While the recession hurts now, the injection of all this new money is simply prolonging the negative effects. Sure, it may result in a shallower recession now, but it will end up causing dramatic inflation (which, has just begun, by the way – http://finance.yahoo.com/news/Wholesale-inflation-takes-apf-14410311.html) which will further hurt those who can least afford it.
I agree with your statement that government and interest groups simply look out for themselves, and while private corporations also focus on their bottom line, sometimes to the determent of their customers or employees, in the end, they go out of business if they don’t provide the customer with something they want for the right price (see Circuit City/Linens ‘N’ Things).
The banks who irresponsibly lent money to people who couldn’t afford their loans (regardless of whether government policies encouraged poor lending practices) SHOULD go out of business or at the very least, should declare bankruptcy and reorganize.
It sounds like we have different views on the effectiveness of markets v. government policies, so the points I’m making may be moot, but the government and their policies share just as much blame for the crisis we find ourselves in now.
February 19th, 2009 at 12:47 pm
How will we generate the wealth needed to restructure the nation? If we are to move, to create communities where we are again closer to the sources of production – how will we afford this major work? One answer may lie in the decline of cheap oil. The world may be flat today, but it may again become a rugged and distant landscape if oil prices soar. Cheap goods from aborad will be a memory, and the competitive advantage may return to local or regionally-produced goods. complexified on twitter.
February 19th, 2009 at 5:07 pm
Politicians of both parties and business have all told the American people they do not have to pay for everything they consume. Social Security, public and private pension plans have promised greater retirement benefits than the tax or corporate contributions required to sustain those promises will generate. Medicare has promised more generous future health benefits than people have been asked to pay for in the present. Wars, supposedly to defend our freedom, have been funded by borrowing rather than asking taxpayers to assume the cost now. Americans have grown use to consuming fuel at a cost that ignores the negative externalities (pollution and climate change) of its use.
I had hoped the president would have the courage to tell Americans that now is the time to start paying for all you have consumed. Fixes include setting retirement age back by at least a year. Skipping a year’s COL increase for current retirees with the savings to go into strengthening the pension funds and Social Security. Higher Medicare premiums and changing the law to allow government to negotiate better prices. A serious carbon tax with the funds invested in alternative energy and increased efficiency. Corporate bonuses should be held in a trust for five years to make sure the companies reported profits are real profits before they are released to the executives.
Our economy has to become a lot more productive in order to dig our way out of the hole we have collectively dug. In the short run that may mean more job losses. Do we really need mail delivered six days a week? Could we not get all our shopping done even if stores were to be open one less hour a day? Why can’t unemployed people volunteer in schools, clean up parks or work on community improvements?
I don’t know what it will take but I’m convinced more of the same is not the solution.
February 19th, 2009 at 5:34 pm
I hear a lot of talk bemoaning our current Fordist, American-consumption model, but not a lot of talk on what this Brave New Market will look like.
You go to some cities in America, and you see nothing but Walmarts, Chili’s, and Verizon stores. Everyone works at one store, and buys from the other two. But no one is actually making anything new, or producing something of value. My question, outside looking in, is whether we could sustain our economy by selling eachother things. I guess the answer is now “no.”
But being critical of that model does not tell you what the new one will look like. You can replace all the roads with high-speed rail, create dense mixed use neighborhoods back in our cities, and replace all our coal fired power plants with solar and wind, but to what end? Have I truly changed the market if I rode a train to my job at Verizon selling cell phones? What new “things” do we need to produce or do to truly correct our market. Because I agree with Jeremy – we are in a market correction, and I don’t want to simply borrow to prop up a bad system, and that’s what we seem to be doing.
February 19th, 2009 at 6:21 pm
In the current structural & governmental environment, the US won’t recover. This is the new “norm”.
Why would people continue to pay taxes if the irresponsible (the Finance sector) and the corporate welfare crews (tax breaks, etc) are being bailed out and supported instead of pulling their own weight.
The informal economy (cash only, bartering, etc) will grow and replace what the US has now.
February 20th, 2009 at 1:51 am
How can the US recover if corrupt CEOs and bankers who created the problems get enormous bailouts, while the majority of people get an extra $13.00 per week? To say that there is widespread resentment would be an understatement. There is also lots of fear, high capacity ammunition magazines are literally flying off the shelves. Incidentally, investing in high cap ammo is better than gold, 9mm Glock clips sold for around $33 on the day of the election, and are $65 now.
I heard that there are 143 new taxes coming along with the tax increases in California. Who wants to pay that?
February 20th, 2009 at 6:51 am
If you’re in California, you have no choice. The lack of property tax has hamstrung the state budget. With a $40 billion dollar deficit, you could fire every state employee up to and including the Governor, and you’d only save $26 billion.
At some point, you are going to have to raise taxes on something.
February 20th, 2009 at 12:06 pm
It is sobering to know that every dime I’ve invested since I’ve started working in ‘95 has been cut by 50%.
I think the advice that my generation has been given regarding stock investing has been absolutely awful. I can’t help but think that, had I followed the investment advice given to my parents generation (put it an an insured passbook savings acount), I would be ahead of the game.
The only reason I don’t liquidate my stock holdings is fear that I could miss the next boom. That’s what kept me in the market after ‘01. It worked for a time. Will it work again?
Also, all I know is stocks (mutual funds, really). I don’t know a thing about bonds, or any other investment alternatives.
March 3rd, 2009 at 7:14 pm
Sounds good, but are we looking at say $10 + fees = $30 ?