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This is a time for important anniversaries.  We’re looking straight into the heart of the 9/11 anniversary this year with terrible rumblings shaking the foundations of our free and open society.  The earth itself is about to turn the northern part of our planet away from the sun and into winter.  Lost in this reflective time is likely to be an anniversary that we might not want to remember or think comes close in the wash of time and history.  This is the second anniversary of the meltdown on Wall Street that has defined our economy ever since.

In 2008 the collapse of Lehman, Merril, AIG, WaMu, and a few others came as such a surprise that very few people thought that it was part of a new Depression.  Nearly everyone who had access to a media outlet expressed surprise that it could even happen.  The perspective of two years is enough to give us some understanding as to how significant this was, however, and how it might fit into a bigger history.

Consider that two years ago it was popular to talk of a “housing bubble” as an isolated incident that was causing trouble for a few homeowners out on the fringes.  We now know that this was part of a larger bubble in technology, finance, housing, and briefly even commodities that washed over our economy.  While it has yet to be a completely accepted popular opinion, more people every day are open to the notion that decades of shuffling along through good times created a deeply held belief that we could all have something from nothing without a lot of hard work.

Working through an anniversary like this can help us to understand where we are and where we might be going.  History may be a terrible guide to the future, but it is all we have.  A bit of perspective can help us to make it through this and achieve Restructuring – a new economy that is stronger than the old one that fell apart two years ago.  Recovery is, after all, not an event but a process.

The reason this anniversary is important lies in the one that overshadows it, I believe.  History will probably start this Depression in September 2001 for many reasons.  The most important single reason is that our nation – and the world – spent a solid week or more not doing anything but huddling together and trying to make sense of what happened.

A lost week may not look like much, but to a fragile economy built on a massive bubble it was a lot.  After 2001, the US government ran massive deficits to finance two wars simultaneously and cut taxes at the same time.  Alan Greenspan’s Federal Reserve held interest rates low.  American cashed out $1.8T in home equity between 2001 and 2008, peaking at $354B in 2006 (or about 3.4% of GDP).  Yet for all this tremendous outflow of cash we had almost no inflation and no significant economic growth – we barely held even.  Unlike past Depressions, this one was buried under a big pile of paper for a long time.

Two years on, it’s become fairly well accepted that this cannot continue.  What exactly we can do is still not obvious and I don’t think that it could possibly be.  We still have a poisonous political divide that has prevented us from even discussing our priorities in a realistic and open way, let alone setting and satisfying them.  For all the perspective time can give us it’s up to all of us to allow it to settle into our guts as wisdom.

Whatever the next two years or nine years might bring us is, to a large extent, up to all of us.  We can look back on these anniversaries and rightly feel sad at the terrible loss we feel just as we can feel the chill of September in the air.  But what is most important at this time is moving forward, together, and making an effort to understand what happened and what we can do about it.

12 thoughts on “Anniversaries

  1. You make a good case here but I think it will still be lost on most people. If we have been in a depression for 9 years you are including a lot of years that seemed pretty good at the time for a lot of people. Maybe it will seem obvious that it couldn’t continue as time goes on but I think that people will be slow to accept that.

  2. “After 2001 … we had almost no inflation and no economic growth … ” Huh? Inflation has been low, but no growth? Productivity and growth have both increased the vast majority of quarters. The recession/depression shrink in GDP since the end of 2007 is obvious, but GDP was growing nicely for several years. The truly notable point is the lack of real wage growth for the majority of Americans during this time. The nation produced, it just concentrated wealth and decreased the middle class. It is getting to be a tired story, but even with a decline in manufacturing, the economy was growing most of the last decade – sometimes quite substantially from the end of the last recession in 2002 to end of 2007 (the beginning of the tailspin).

  3. Bruce – I’ll say “little growth” – it’s been rather anemic, especially compared to the 1990s. But “no growth” was an overstatement, for sure.

  4. I think it is sinking in with people that we are in a different situation than we have had in a long time. That seems to only create more arguing. I want to do a lot more listening and less arguing myself. It seems like the only thing that makes sense.

  5. Janine, I don’t see myself arguing with Erik as much as playing occasional fact checker/challenger. I’m not looking for a fight. If I see a statement I think is dubious, I like to point it out. I think it advances the conversation and understanding.

    Erik is right about growth being anemic – aside from late 2004 when GDP growth was around 4% from the previous quarter. But quarter over quarter GDP growth can be misleading way of looking at economies — Turkmenistan and Sudan have beaten us on a percentage basis for the last several years (even when Turkmenistan’s dictator was renaming months of the year after members of his family and taking the country toward the stone age). Even in the fourth quarter of last year with around 10% unemployment and poor wage growth we got 5% growth – because the previous quarter was so dismal.

  6. I think that the UK mirrors the course that the US founf itself on. Our fate I suspect is even worse we are still only seeing the tips of the icebergs. As oiur econonmy is greatly fuelled by service industries and housing we may be seeng small steps away from the abyss but it will take an extreme and concerted effort from ALL parties to haul this country back onto it’s knees again. Reform of our social welfare system has to go hand in hand with reform on the employment front. Making it possible for people to financially cut their apron strings from the welfare trap. So that the ideas of tapering benefit levels over a set period of time is meaningful. Industry and manufacturng has to be revtalised and restimulated in the UK. Will any of these combinations be considered? The optimist in me says the situation that we’re in why not. The pesimist in me says, even with a so called coalition government the conservative element is too strong and we are left with libSERVATISM

  7. Bruce – I think Janine meant in general that we argue too much. You help me refine my arguments and make them stronger – that’s totally different. 🙂 Thanks, BTW.

    What I need to say is that real (inflation adjusted) GDP growth in the 1990s compounded at about 6.4% per year, but in the 2000s it was 2.4% – despite the injection of $7.6T in public debt (53% of 2008 GDP), $1.8T in home equity cash-out (13$ of 2008 GDP) and historically quite low interest rates. That’s just amazing. If that’s a Depression being managed by Keynesianism I don’t know what is.

    (note: at least one “conservative” has said that doing this through tax cuts is not Keynesianism but “Austrian School Economics” – that level of pure delusion shows us how deep the problem is)

    Gwei: I love the term ‘Liberservatism”! It sounds so terribly awful. But you know I am cheering very hard for the UK to show us how different parties can work together. You do have a very hard problem, perhaps even harder than ours, but at least you are not making it worse for yourselves. Good luck with the reforms and austerity that you are working through – I do trust that in many ways you will provide leadership we so desperately need.

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