This is the most frightening economic chart I have seen in the last decade.
Net private investment, which includes spending on everything from machine tools to new houses, minus depreciation, fell to 0.1% of gross domestic product in the second quarter of 2009, according to the latest government data. That’s the lowest level since at least 1947.
Capitalism’s most vulnerable point is the death spiral of overcapacity. In the easy credit boom times we built too many malls, too many car factories, too may fast food joints, too many houses. Now the only way for businesses and consumers to survive is too cut back drastically.
That creates a chicken-and-egg problem at a time when the unemployment rate is already nearly 10%: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring
This hits the hardest in the young and Business Week raised the possibility that we are creating a “Lost Generation” of young people without the prospects of decent employment. Look at this chart of youth unemployment.
We can talk all we want about building a better future full of “Green Jobs”, but on the current trajectory, that future will arrive in China long before it reaches our shores. The “chicken and egg” problem described by the Wall Street Journal won’t be solved until the government starts aggressively seeding the Green Tech Business, because alternative energy is the only place where we have undercapacity. And this can be a “bottoms-up” strategy simply by requiring every utility company to buy excess solar and wind capacity from consumers at some sort of fixed rate. Consumers in California could easily afford to shift to solar if they knew they could make a profit from their excess capacity. The second thing the government could do would be to designate certain less scenic parts of the millions of acres of government land as open for solar and wind development in a public private partnership.
The Great Depression required the WPA to act as the investor in public infrastructure to get us out of the death spiral of Zero private investment. We are back at that place (0.1% of GDP). WE need a Green WPA now.