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Annus horribilis: (Clarification)
I get a feeling that my last post,"Annus horribilis... and you are pretty cute yourself" may have been so chock full of goodies and long winded quotes that some of my readers may have had a bit of trouble seeing just what I was driving at, so today I'll try to be more concise and to the point.
I am coming to believe that at the bottom of the crisis is the creeping impoverishment of the once universally envied American middle class; this impoverishment has been brought on by an American lead revolution in productivity, which has made American workers themselves redundant except as consumers. This process resembles the flight of a legendary bird that flying in ever tighter concentric circles, finally flies up its own behind and disappears.
The communications revolution of the Internet, which makes it possible for Indian and Bangladesh knowledge workers to do the back office work of the American multinationals and for Chinese factory workers to produce most of the world's hard goods at amazingly low prices, has left the American middle class with only the universal role of "consumer of last resort". How does that play?
Since today's Americans are no longer much needed for useful work, they have to be loaned money from the earnings and savings of those around the world who now do that real work, in order for them to be able to buy the things those workers and savers produce. If Americans ever stop borrowing money to buy all of this, or if other people stop lending it to them, then the world will collapse... Or so the story goes. That is about as an encapsulated summing up of the situation as you are likely to find anywhere.
First, lets look at the impoverishment part. In my last post I quoted The Atlantic's James Fallows at length. Today I'll limit myself to one paragraph:
Half this country's households live on less than $50,000 a year. That sounds like a significant improvement from the $44,000 household median in 2003. But a year in private college now costs $83,000, a day in a hospital $1,350, a year in a nursing home $150,000--and a gallon of gasoline $9. Thus we start off knowing that for half our people there is no chance--none--of getting ahead of the game. James FallowsNow, lets have a quick look at how the "working poor" can consume all they must consume in order for the world to survive:
Today's global crisis was triggered by the collapse of the U.S. housing bubble, but it wasn't caused only by it. America's credit excesses were in residential mortgages, commercial mortgages, credit cards, auto loans and student loans. Nouriel RoubiniHere follows the Financial Times chief economist, Martin Wolf summing it all up and projecting what will probably happen:
What makes rescue so difficult is the force that drove the crisis: the interplay between persistent external and internal imbalances in the US and the rest of the world. The US and a number of other chronic deficit countries have, at present, structurally deficient capacity to produce tradable goods and services.(...) (This)means that US rescue efforts need to be big enough not only to raise demand for US output but also to raise demand for the surplus output of much of the rest of the world.(...) Now think what will happen if, after two or more years of monstrous fiscal deficits, the US is still mired in unemployment and slow growth. People will ask why the country is exporting so much of its demand to sustain jobs abroad. They will want their demand back. Martin Wolf - Financial TimesIn plain language, the US government is going to print a lot of money (lots and lots) and hope that it gets into the hands of American consumers so that they can buy Chinese goods in the hopes that the Chinese don't sell off their US treasury bonds and destroy the dollar (think a hundred dollar cardboard cup of coffee in McDonald's, think granny spending her month's pension on a bucket of KFC). If this doesn't work, Wolf thinks the results will be catastrophic:
Once the integration of the world economy starts to reverse and unemployment soars, the demons of our past - above all, nationalism - will return. Achievements of decades may collapse almost overnight.What I don't have clear is exactly whose "nationalism" it is that Wolf is talking about. As far as I know Americans are, and always have been, very nationalistic, except that they call themselves "patriotic", and only when other people are patriotic do they call it "nationalistic"... I confess that I fail to see much difference and since Wolf is not American, I'm not sure what he means.
In my opinion those are the different forces that are pulling and tugging the situation into one shape or another and what the final shape will be depends on what or who tugs the most.
Optimism or pessimism?
If you think it would be great if things had stayed the way they were, then you should be pessimistic. If you think things sucked the way they were and would like to see things change, then you can be optimistic. Things are going to change anyway and, who knows, they might end up better.
http://seaton-newslinks.blogspot.com/
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Congratulations. You've become that legendary bird. Give back your farking Social Security, you useless parasite.
January 7, 2009 5:26 PM | Reply | Permalink
Wages can in principle be supplemented by investment income (and even by selling off assets, aka capital gains) and government subsidies (Medicare, Social Security, etc.). With a baby boom headed into retirement, the USA will see more and more non-wage-based consumption.
It's said that one farm worker can now feed over 100 people. And automation in electronics and manufacturing in general is reducing the utility of direct labor (while increasing the value of indirect labor such as technicians to run and service machines). This is not news. But the question this points to is this: How important are jobs?
Are we simply even more over-leveraged than were Bear Stearns et al?
January 7, 2009 7:31 PM | Reply | Permalink
Eds,
Writing on the wall, eh what?You are right on target. We have a wonderful system, just not wonderful for human beings. Our economy has been covering this shortfall with Ponzi-like debt to postpone the political consequences of a system that does not finally serve the basic needs of its citizens/subjects.
It is going to unravel fast. Read this:
January 8, 2009 2:06 AM | Reply | Permalink
Here is the solution:
I just read the following article in today’s FT, “Darwin’s recessionary tip: act like a beetle”.
My knowledge of beetles is sketchy, but as I remember they spend a lot of their time gathering feces and rolling it into little balls which they push up hill… or was that Sisyphus? Anyway it seems like a super idea. Let’s roll!
January 8, 2009 2:18 AM | Reply | Permalink
One class of beetles does that, the dung beetle, without which the world would be a mile deep in fur by now.
Speaking of cleaning up, corruption can be fun in Spanish, too, it seems. Marbella is in the news, but has lots of company in the privatizing of the commons.
http://www.bloomberg.com/apps/news?pid=20601109&sid=akGONZPNY7Wg&refer=home
January 8, 2009 8:40 AM | Reply | Permalink
Obviously you warmed to said advice long ago, as you have certainly mastered the art of emulating a dung beetle.
January 8, 2009 9:12 AM | Reply | Permalink
You don't want to boogie woogie with the king of rock and roll.
January 8, 2009 2:47 PM | Reply | Permalink