We’ve hit a new low in “expert” advice about what’s ailing our economy, and what we need to do to fix it. The Economist, which is growing ever more out of touch, has the newest solution:
“So if the economy is to grow much faster than its 2.5% trend, consumers must start borrowing and spending again.”
So much stupidity in 20 words. (read the whole article here)
Wasn’t over borrowing part of the problem in the first place? And borrowing produces nothing more than advanced demand, anyway. Are we supposed to be debt and consumption slaves forever? Finally, we live on a finite planet. All this borrowing so we can spend on consumer items has environmental costs that have never been calculated. It cannot go on forever. Eventually, we will have to create another economy.
Ah, but there is some reality in there too, if anyone cared to sift for it. What these 20 words say to me is that our entire economy as we know it is on life-support, at best. If consumers need to borrow more, in order to be able to spend more, what would cause them to be confident enough to borrow? One or more of three things: increased incomes, increased equity in real estate, and/or increased stock portfolios. None of those offer any hope.
We are in for many years of high unemployment. Right now, the U-6 “real” rate of unemployment is at 17%. Add in millions of people who are in school, and it’s more like 20% at least. 1 in 5 Americans without a real job. That drives down wages for everyone else who does have a job. People who are worried about losing a job, or who are living with stagnant or declining wages, are unlikely to go out and borrow lots of money to buy more shit, however desperate they are to make themselves feel better. This is where the Economist’s prescription comes in. Growth of only 2.5% per year isn’t enough to create new jobs. So, if we all go deeper into debt, we will help the economy grow faster, which will enable job growth, which will increase our wages, which will enable us to pay off the debt we took on. Make sense? Not to me either.
Then there’s housing. We have not hit bottom in prices, which means that there are more hits to equity yet to come. Millions of mortgages are already in default, and more are headed there. Baby boomers are trying desperately to cash out. Together, all this means more supply than demand, which will lead to a continuing decline in prices. Falling prices equals declining equity. Declining equity means no one has anything to borrow against. Thus this isn’t an avenue to increasing consumer spending either.
Finally, if people were to resume spending, they would need to see themselves as possessing an increasing net worth. We see that incomes and housing aren’t going to do that. A rising stock portfolio would be one last way. Yet most people still feel wiped out by the 08 crash, and while the market is up this year, no one feels more wealthy because they don’t think they’ve covered their losses. And I personally think the market is WAY overvalued. If it does come down in line with where it should be, this will probably be the last straw for most typical Americans.
So there is no way to sustain a consumer binge. Yet The Economist (and I’d say most conventional economists) insist that the solution to the economic mess lies with us increasing our spending. Ain’t happening. And because it ain’t, our economy will be moribund for years.
I’ve increasingly begun to see the importance of making our economic transition now. We must go from a fossil fuel, debt, and consumption based economy to a clean energy economy. To get there, we must lead the world by putting a price on carbon and then ensuring that every country in the world does the same thing. If they don’t, we will penalize their exports. Doing this will give us an advantage in creating the renewable energy generators that we will need for the rest of time. This will jump start our economy like nothing else. We will again be a nation that produces things, that is truly planning for its own best interests. Wages will increase. People will again see that real education is vital (unlike today where college grads serve coffee). We will be better prepared for the coming oil shocks. We will increase our national independence. It’s just this simple. Now is the time. No more shovel ready road projects, no more money sunk into building a smart grid or trying to make coal clean. Now is the time for a sweeping renewable energy revolution. Now is the time to begin building a solar economy.