This is the third in a series outlining the economic and foreign policy challenges for the coming election. Part I dealt with the cultural and security Blowback from our foreign military adventures. Part II dealt with the game theory of the Free Rider. This post will deal with the economic consequences of the extremist “laissez-faire” economic policies put in place by the Supply-Side (what George H.W. Bush called Voodoo Economics) gurus that Ronald Reagan employed and Bill Clinton never repudiated. In the simplest form, the idea was that the country did not have to earn as much as it spent, because the rest of the world would lend us the difference because we held the one reserve currency (the dollar) that everyone was trading in. Oil sheiks and Chinese manufacturers had the dollars we paid them and the easiest place to park them was in U.S.Treasury Bills. Now the individual citizens of America thought this was a great idea and as you can see from the chart above began to adopt the same borrow and spend lifestyle, such that by 2004 we had a negative savings rate for the first time in history.During the Laissez Faire era, U.S. corporations began an epic hunt for cheaper labor, and by 1985 had begun the hollowing out of American manufacturing capacity that allows us to blithely refer to the whole Midwest as “the rust belt”. Here is the result:
Notice a pattern here? Yesterday the Dow plunged 3% at the very moment that President Bush, Congressional Leaders and The Fed Chairman were singing Kumbaya about their Bi-Partisan stimulus package. Traders are signalling that the recession horse is already out of the barn, and that dropping money from a helicopter on the indebted consumer may not be answer to the politicians prayers about not having to run for reelection in a severe recession.
An honest politician would tell the country the truth. The era of cheap oil, easy credit and spending more than you earn is over. America cannot exist with 70% of its economy based on consumers spending at the mall. We will actually have to rebuild our manufacturing base and that means we will have to rebuild our infrastructure. We can no longer be 16th in the world in Broadband Diffusion, 26th in the world in 12th grade science scores and pay our teachers like they were flipping hamburgers. This transition is going to be painful as people pay off their credit cards, reduce their silly spending for things they don’t need and become more resistant to the 5000 commercial messages a day they are bombarded with. I am reminded of John Kenneth Galbraith’s book, The Affluent Society
Needless to say, this transition will take a reordering of government as well as individual priorities. Tomorrow we will explore that that reordering might look like.
12 responses so far ↓
Dan Phiffer // January 18, 2008 at 7:32 am |
Looking forward to the last installment. I’m curious to what extent you think digital goods / services can help stabilize the economy (in addition to, or instead of, the physical infrastructure you mention here).
Obama & Reagan « Jon Taplin’s Blog // January 18, 2008 at 3:10 pm |
[...] About Jon Taplin ← Blowback III [...]
Greg // January 18, 2008 at 4:11 pm |
Jon,
fantastic post. I’ve been extremely sensitive to advertising since I was in my teens. and what you’re saying about the hamster-wheel middle-class certainly hits home for me. Although I’ve been saying that madison avenue trend creators have been knowingly at it for much longer than just recent memory. ((( for instance, The time I opened a Rolling Stone to see a two page add that was all racks of flannel shirts in the period following Nirvana’s huge explosion into the MTV world. I went to see Nirvana when they came through town that year, sure. But I stood in the bleachers for half the show and shouted “TV babies” at the top of my lungs in homage to Matt Dillon’s character’s last line in Drug Store Cowboy. )))
Advertisers have been covertly guiding the spending habits of people for a long time now, bringing some of the prophecies of the Matrix’s “human battery” into existence right beneath our noses. They create a trend, encourage people to pour dollars into the merch, stock the walmart and collect. Its one thing when you convince a gullible lower-middle-class to part with its dollars over pointless junk, but what really gets me, is the banality of the experience. Empty, meaningless, pointless stupid ideas are being put into people’s heads, in place of actual thoughts. That drives me crazy to no end. For gods sakes, if some people need to be told what to think about, the least we could do would be to give them something artistic or just plane useful to put in their heads. But no, the privilege has been abused and the trust violated by advertisers.
Sounds a little dour, but I’m trying to be dramatic for effect. I’m from the midwest, and that is what my experience of growing up there was like. Turn on the food network and everyone is glued to the screen as if by magical incantation; TV babies.
anyway, nuff beating a dead meme. Like others, I came here by way of boingboing. You’re stuff is great reading. I’ll try to keep up.
clement munns // January 19, 2008 at 1:22 pm |
Your analysis is based on a nation-specific
currency mindset…
what the free-riders don’t get is to have a
fiat global currency.
until such a time as there is a competing
fiat currency, views of the US economy
segemented out from global trading partners
are neither instructive, nor informative.
merchantilism is not sustainable over
millenial time frames.
also, stats about school outcome ranking
are misleading in the extreme as they are
a bundle of results including immigrant
ESL children….
I, for one, am happy to send green rectangles
for oil, goods, or anything anybody wants to
send here from somewhere else…
also, I welcome any who want to come and
add to the human capital….which comes in
droves.
btw: no need to be an economic doomsayer
to obviate the need for change in the political
arena.
uvagrad // January 19, 2008 at 1:30 pm |
Wonderful post! I’m a member of the covert, gerbil-producing, merch-pushing Madison Ave bunch, and I agree with almost everything I’ve read here. I am probably more likely than you to blame my parents than the TV for my own consumerist tendenceis, but we can lay back in that analyst’s couch another time.
Have you read Greenspan’s Age of Turbulence? Curious to hear your reaction. Also would love to hear you reflect on the popular opinion that he will be revealed as perpetrating the worst economic crimes in our country’s history. I confess, I need a sherpa to lead me to that conclusion.
Jon Taplin // January 19, 2008 at 3:56 pm |
Clement-Whether the dollar can maintain its status as “the fiat global currency” is of course the question of the moment. As I pointed out two weeks ago, the unwillingness of Petro Giants to hold dollars contributes to the punitive cost of oil.
http://jtaplin.wordpress.com/2008/01/05/recession-coming/
UVAgrad-I haven’t read Greenspan’s book. If we go into a bad slump, we will certainly have cause to revisit his mismanagement of the real estate bubble and his unwillingness to regulate the mortgage industry
Jon Taplin // January 19, 2008 at 3:59 pm |
Dan Phiffer- I actually think the digital economy could be a critical resourse for finding a way out of the mess we are in. You will see in tomorrow’s installment.
Blowback IV-The New Federalism « Jon Taplin’s Blog // January 19, 2008 at 10:10 pm |
[...] foreign policy challenges for the coming election. The previous installments are: Part 1, Part 2, Part 3. To those of you who expect blog entries to be short and sweet, I apologize. What I am attempting [...]
mac // February 17, 2008 at 3:29 pm |
Good…
Where’s The Big Idea? « Jon Taplin’s Blog // June 7, 2008 at 4:57 pm |
[...] of those dreams having to do with building an alternative energy industry and the transition to a savings/investment economy. As Bill Gross and I have pointed out, we are not going to get out of this mess with the [...]
America in Hock « Jon Taplin’s Blog // June 10, 2008 at 8:53 am |
[...] year. Clearly, the current credit crisis is demonstrating this is unsustainable. Back in January, I wrote about the problem of America’s negative savings rate and remarked about John Kenneth Galbraith’s concern [...]
Blowback III -- Wes Kelley (the online experience) // July 27, 2008 at 5:11 pm |
[...] I’m not sure I agree with Taplin’s overall political persuasion, his observations are very interesting and worth careful attention. Essentially he argues that time is running out [...]