When you see a fork in the road, take it.-Yogi Berra
The events of the past week have clearly brought us to a fork in the road. At any important decision point it’s often useful to do a scenario planning exercise. What are the dynamics we are wrestling with and what are the possible outcomes of those forces? So the first force is that of deleverage. In ten years will we as a country (both individuals, businesses and governments) be more in debt or less in debt? And the second, countervailing force is that of devolution. Will the sources of leadership, innovation and change come from decentralized, networked, “bottom up” forces or from centralized, hierarchical, “top down” forces?
Anyone who doubted that we are living in a decentralized, networked world must have had their mind changed by this week’s events. On Thursday the Fed injected $105 billion into the U.S. Banking system and $200 billion to other central banks and still the global credit markets seized up. George Bush, Dick Cheney and John McCain are leaders for a centralized, top down world that no longer exists. Bush’s perplexed look at Paulson this morning tells the whole tale. He doesn’t have a clue as to what is happening on his watch. On the other hand, Barack Obama believes in the power of the decentralized, bottom up forces that powered his campaign and overthrew the top down hierarchy of the Clinton Machine. He is ready for this moment.
Then it seems to me the only question is are we going to be richer or poorer in ten years time? Will the boomers be leaving an unmanageable debt on our children and grandchildren? My belief is that the devolutionary forces that made it impossible for Paulson to control the downspiral on a de facto basis, can also help us figure out how to slowly rebuild our collective savings. We will betray our children if we just use this crisis to merely transfer the enormous debt from private to public ownership–just to rebuild the old system of consume and borrow, rather than creating a produce and save society.
In short, deleveraging means we are all going to have to downsize. You life is going to get simpler, you will shed excess baggage. The second hand stores will flourish. The malls will shrink and there will be fewer of them. You will spend more evenings at home around a table with friends than in high priced restaurants. You might even learn to play an instrument to entertain yourself and your friends rather than shelling out $200 a head for Rolling Stones concert seats. You will put up your solar roof and sell power back to the grid. You will drive a hybrid or use mass transit. Your garden will become a prime source of your food.
And in business you will use I Chat for business meetings rather than getting on an airplane. Collaborative social and business networks will become even more important. The home teleworker will be a huge part of the work force. Every business will have to be a Green business, shrinking their carbon footprint and energy costs. Many large companies will be busted up into more efficient units. But there will also be many fewer small banks and probably fewer retail outlets. The consumer economy will not represent 73% of GDP in ten years.
As for the government, it too will have to shrink. This is no time for the huge cost of empire. The military budget will have to take major cuts alongside other programs. Many domestic government service functions should be returned to the states and the overlapping bureaucracies in Education, Housing, Labor, Agriculture, and HHS must be reconciled between the states and the Feds. I have called this The New Federalism and there are quite a few articles on it if you use the search function.
The government is also going to have to raise revenues, because just the interest costs on the $trillion bailouts will be huge. The most effective way would be an immediate tax of $20 a barrel of imported oil (the equivalent of about $0.50 per gallon). That could bring in about $75 billion a year which could help finance the transition to an ET (Energy Technology) economy and also help control the deficit. It would keep the price of fossil fuels high enough that wind and solar could compete in the energy generation business. It would put market pressures on Detroit and consumers to use more efficient automobiles.
Through all of this we will have to reconcile our selves to the notion that Growth (as measured by GDP) will be slower. This is only natural. When as a family you spend too much on a vacation, you “slow down” for the next few months. This is a natural cycle. Our high growth was dependant on the financial steroids of debt.Our body politic cannot stand the steroids any more.