Good News in the Bad News
The markets got a bit spooked today by the unexpected drop in GDP for the final quarter of 2012. But buried in the numbers are signs of a positive transition from a war to a peace economy.
The drop in gross domestic product was driven by a plunge in military spending, as well as fewer exports and a steep slowdown in the buildup of inventories by businesses…Despite the overall contraction, there was underlying data in the report suggesting the economy is not on the brink of a recession or an extended slump. Residential investment jumped 15.3 percent, a sign that the housing sector continues to recover, for one. Similarly, investment in equipment and software by businesses rose 12.4 percent, an indicator that companies are still spending.
I continue to be very optimistic about the direction of American policy as we emerge from our eight year Interregnum. Imagine if the 11 million undocumented workers emerged from the underground (cash) economy and started paying taxes. What would that do to the actuarial calculations of Social Security and Medicare? Imagine if Lockheed Martin started to manufacture wind turbines instead of fighter jets.
The greatest task of the next ten years will be Economic Conversion, the process of converting from a military economy to a civilian/peace economy. The economist Seymour Melman, who did the most important work on this subject, noted that the task ahead of us will not be easy.
“The problem of conversion from military to civilian work is fundamentally different now from the problem that existed after World War II. At that time, the issue was reconversion; the firms could and did go back to doing the work they had been involved in before the war. They could literally draw the olds sets of blueprints and tools from the shelf and go to work on the old products. At the present time, the bulk of military production is concentrated in industries, firms, or plants that have been specialized for this work, and frequently have no prior history of civilian work”
A larger part of the problem will be that the Military Industrial complex is situated deeply in the Red States, particularly Texas and the Deep South. Alex Bowles has pointed out to me that this could create even more Anti-Obama anger. Any attempt to pacify the South with some sort of Government aid to ease the Conversion, will be met with resistance.
The upshot is the mollifying the GOP will be easier said than done. Their response to the last election (“We’ll just rig the next one”) makes their contempt for both outsiders and democracy explicit. They are becoming, in a very real sense, un-American in that the overarching ideal of Government of, by, and for the people is becoming the focal point for organized rage directed at both the government and the people.
Increased investment drives economic growth, while retrenched investment leads to recession and reduced employment–and it always has. Those who blame our stagnation on a lack of consumer demand rely on a toxic brew of dubious data and dangerous theory.
It seems to me that the American public has already made a shift to a culture in which spending at the mall will be a lot less important and yet the politicians are acting like their job is to restore the status quo ante–a world the public no longer cares about. Larry Summers talks about getting the big banks lending again, but what business wants to borrow when there is so much excess capacity? There are too many damn malls. Too many car dealerships. What person in their right mind would start a new retail clothing business today?