It has been my contention since 2007 that global capitalism was entering a period of stagnation that could not be cured by the temporary fix of lowering interest rates. Yesterday’s grim unemployment report in the U.S. only compounded the problems in the rest of the world.
The report on American jobs added to the global pall that has deepened with Europe’s debt crisis and slowing growth in China and India. Global financial markets, weak in early trading on Friday, sank further on the report. The Dow Jones industrial average lost 2.22 percent, or 274.88 points, wiping out its gains for the year, and the main index of the German stock market closed down 3.4 percent.
The American economy since Ronald Reagan first started to push Supply Side economics (sometimes know as trickle-down economics) has increasingly skewed gains to the top 1% and flattened middle and lower class wages. In such an atmosphere the engine of consumer spending could only be fueled by easy consumer credit mixed with aggressive marketing efforts—the classic “keeping up with the Jones’s” routine. Fiscal stimulus depended mostly on aggressive military spending which seemed to grow even in the face of the collapse of the Soviet empire. The financial sector, which was once restricted to aiding the manufacturing economy, gradually became the driving force in the economy. Speculative finance became so important to keeping the dogs of depression at bay, that the Lender of Last resort–The Fed–essentially ended up becoming the backstop to the most egregious kind of derivative trading, pouring hundreds of billions into Wall Street investment banks.
But this horrendous imbalance was not confined to America. In both Europe and China, banks fueled property bubbles which have now burst and the bottom is not in sight. I don’t think any of the world’s leaders have a clue of how to overcome the stagnation without just pouring more debt capital into the economy. What is clear is that the average citizen has learned some lessons since 2008. Personal credit card debt has fallen quite dramatically.
When economist wonder why the economy seems to shrink every spring after rising in the fourth quarter, the answer seems obvious. People are willing to spend extra money to give gifts during the holiday season, but they spend most of the rest of the year paying down their credit cards after the Christmas binge.
So what is to be done? One solution might be to stop believing that automation and productivity are the be all and end all of society. I posted a link to an article by Tim Jackson entitled, Let’s be Less Productive, on my Facebook wall this week. It inspired a lot of comments and discussion. Here is Jackson’s argument in a nutshell.
But the relentless drive for productivity may also have some natural limits. Ever-increasing productivity means that if our economies don’t continue to expand, we risk putting people out of work. If more is possible each passing year with each working hour, then either output has to increase or else there is less work to go around. Like it or not, we find ourselves hooked on growth.
What, then, should happen when, for one reason or another, growth just isn’t to be had anymore? Maybe it’s a financial crisis. Or rising prices for resources like oil. Or the need to rein in growth for the damage it’s inflicting on the planet: climate change, deforestation, the loss of biodiversity. Maybe it’s any of the reasons growth can no longer be safely and easily assumed in any of today’s economies. The result is the same. Increasing productivity threatens full employment…
One solution would be to accept the productivity increases, shorten the workweek and share the available work…But there are sectors of the economy where chasing productivity growth doesn’t make sense at all. Certain kinds of tasks rely inherently on the allocation of people’s time and attention. The caring professions are a good example: medicine, social work, education. Expanding our economies in these directions has all sorts of advantages.
In the first place, the time spent by these professions directly improves the quality of our lives. Making them more and more efficient is not, after a certain point, actually desirable. What sense does it make to ask our teachers to teach ever bigger classes? Our doctors to treat more and more patients per hour?
Many of the artisans who correspond on this blog have made the argument for years that chasing growth is a fools errand. We have argued about the notion of a steady state economy. I cannot claim to have the answers to the Great Stagnation, but I don’t the economists do either.