It has been over six weeks since my last post to the Creative Class site. I have moved to London and from my new vantage point the world seems a little distant. However, I also now see the world a little more clearly, and what I see is not pretty. We have had war, elections, financial meltdown, recession etc. What is now clear to me is that whatever your historical perspective, the present situation is different from anything we have lived through. So we are looking at either a 60 or a 100 year event. Take your pick.
That is a long time, even for an economist, who is used to thinking in the long run. What is clear and becoming clearer every day, is that yes growth will return, but it will not happen for a long time. How long? I do not know, but it can be years and years. What is clear to me at this point is that the problem is about the very fabric of society in the U.S. and the U.K. and its global connections. This is not just a housing problem or just a credit problem or just a “Detroit” problem. This is a problem that was years in the making and will take years to unravel. However, how to unravel it is not clear to anyone that i can find.
A few things I know. First, the problem is not a lack of growth. Stimulating the economy to have more growth that we cannot pay for is not the solution. It will just create more problems down the road. Second, the banks are bankrupt. At three percent, capitalization losses are greater than the available capital. How to fix this without giving away the house will take creative energy. Third, the problem is global, and it stems from global flows of technology, goods, and capital of the past decade. The world was flat. This may be the hardest to correct.
How to think about solving the problem is the interesting question. It must start with an examination of the whole question of growth. “Has growth come to an end?” is the wrong question. The right question is “What is the end of growth?” The lack of growth is a mere indicator of what is wrong. The engine that propels America forward is entrepreneurship; entrepreneurship creates wealth; the wealth it creates becomes the fuel to create opportunity. As President Obama stated in his inaugural address: “The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart – not out of charity, but because it is the surest route to our common good.”
The present economic crisis is widely understood to have revealed a dangerous imbalance in the relationship between business and government that further fueled the lack of opportunity for most. Without opportunity stability itself disappears. This will take the creative talent of the international community to solve.
Getting it right will not be easy.