What’s the right thing to do to help the economy? Clearly, Congress has no idea, making bizzy with games designed to impress their constituents. Major economists don’t agree, either, with at least three different views on what is going on and the appropriate remedies. How can it be so chaotic and disorganized?
It’s always been Barataria’s creed that if you complain about how things are you have to stick your neck out and offer a better solution. Our answer has always been that there is a totally new economy forming around us as we work through the Managed Depression, and that there is a dire need for public and private leadership to help us create that new world dynamically. That’s a bit too hard to define , but we can offer is a different way of looking at the situation we’re in. It doesn’t directly point to courses of action, but it suggests things that should be tried.
Here is a description of the Triple Threat to the US Economy – Business Cycles, Globalism, and Demographics – and how they are working together to make this a once in a lifetime change.
The first force acting on the economy is the ordinary business cycle, or K-Wave. There is little doubt that we have been in a “secular bear market” since about 2001, which is to say a cyclical downturn based on debt, technology improvements, and general attitudes. There is no good reason for business cycles to persist as they do, but the grander cycle of four “seasons” described by Russian economist Nikolai Kondratieff, the father of business cycle theory, lasts about one human lifetime. It seems inevitable that once we forget what our grandparents were trying to teach us we have to learn the lessons the hard way. Given that this “Winter” should last about as long as the “Autumn” harvest that preceded it, we can expect this phase of the cycle to end about 2017.
The second force, globalism, is more constant and linear. Depressions or economic “Winters” have always followed great advances in communication and transportation for one simple reason – when a big market is made out of many smaller ones, the excess capacity that is naturally in place in a smaller market becomes completely redundant. This is what caused the Long Depression of the 1880s, which occurred after railroads untied this nation and made many smaller city markets into one big one. We are experiencing a similar problem now as yesterday’s “productivity gains” are today’s “unemployment.” One world market has wrung a lot of excess capacity out of the system worldwide.
The last force is demographic. When Baby Boomers entered the workforce, the 1970s expanded about as well as it could to absorb them all. When their participation rate ballooned as women worked like never before the result was a turbulent end to what was then an economic “Summer” phase. Income inequality has grown since 1968 largely because of downward pressure on wages – caused by so many in the workforce. The median Boomer will hit 65 in 2018, putting a lot of pressure on public infrastructure but opening up a lot of jobs.
Naturally, these forces work together in many ways. The logical response to a Depression is to “prime the pump” with deficit spending and low interest rates – exactly what we have been doing since 2001. The system has largely worked. But in a global market, the stimulus applied didn’t just go into a national economy. The “carry trade” or borrowing money in US Dollars at zero interest and loaning it out in (Yuan, Reals, Rubles, Rupees, etc) fueled the Great Convergence between developing nations and the struggling developed ones. It didn’t go as smoothly as it was supposed to. That’s why Barataria has called for more than just deficit spending but specifically spending on infrastructure – things that can’t be carried away to another part of the globe.
Keep in mind that while capital can fly around the earth at the speed of light, labor is still tied to a local market. The disadvantage that labor has is greatly exaggerated in this situation. That we tax labor more heavily, mostly to fund social security, only exaggerates that disadvantage further.
But the real answer is demographics. The reason Barataria is hopeful for the end of this economic cycle is that jobs will be opened up right on schedule for a gorgeous spring. The problem, of course, is managing the public cost of an aging population – something that will fall to the government one way or the other in the next 5 years. Just as Winter doesn’t last forever, neither does a Baby Boomer’s working lifetime. There will be openings for the kids eventually.
These three forces that make up the Triple Threat are all running on their own clock and make things more difficult for us right now in different ways. It takes a lot of understanding to think through how they converge and then diverge given enough time. But it should be obvious that with all of these changes taking place there are no simple answers and that what worked yesterday won’t necessarily work today.
The seasons change, the world becomes closer, and the people who inhabit it grow old and weary. Some times are better than others, and this too shall pass. But pass into what? That’s the hard part. But if we understand what’s going on we can make some intelligent guesses and try some things to see how helpful they are.
There are many links to past articles embedded in here if you need more information on a topic.