Why Going 'Back To Normal' Is No Longer An Option for the American Economy -- And Where We're Headed

[marmar]

AlterNet / By Sara Robinson

Why Going 'Back To Normal' Is No Longer An Option for the American Economy -- And Where We're Headed Now
Stop waiting around, because "normal" as we know it isn't coming back.

February 7, 2012 |


Former IMF chief economist Joseph Stiglitz has a message for everybody who's sitting around waiting for the economy to "get back to normal."

Stop waiting. ‘Cause that train’s gone, and it ain’t coming back. And the sooner we accept that “normal,” as post WWII America knew and loved it, will not be an option in this century, the sooner we’ll get ourselves moving forward on the path toward a new kind of prosperity. The only real question now is: What future awaits us on the other side of the coming shift?

In a don't-miss article in this month’s Vanity Fair, Stiglitz argues that our current economic woes are the result of a deep structural shift in the economy — a once-in-a-lifetime phase change that happens whenever the foundations of an old economic order are disrupted, and a new basis of wealth creation comes forward to take its place. The last time this happened was in the 1920s and 1930s, when a US economy that was built on farm output became the victim of its own success. Advances in farming led to a food glut. As food prices plummeted, farmers had less money to spend. This, in turn, depressed manufacturing and led to job losses in the cities, too. Land values in both places declined, impoverishing families and trapping them in place.

We remember this as the Great Depression. It lingered until the government stepped in — largely through the war effort — with unprecedented education, housing, transportation, and research investments that created new pathways for all those surplus farmers to come in off the farm, for the factory hands to get back to work, and for both groups to move into the modern industrial middle-class. ................(more)

The complete piece is at: http://www.alternet.org/visions/154056/why_going_%27back_to_normal%27_is_no_longer_an_option_for_the_american_economy_--_and_where_we%27re_headed_now/

[xchrom]

1. du rec. nt

[Owlet]

2. Stiglitz's article is spot on

Why he isn't one of Obama's economic advisers is a mystery to me. Here's some excerpts:


The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade. There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.) Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers.

<snip>


What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction

<snip>


The second conclusion is this: If we expect to maintain any semblance of “normality,” we must fix the financial system. As noted, the implosion of the financial sector may not have been the underlying cause of our current crisis—but it has made it worse, and it’s an obstacle to long-term recovery. Small and medium-size companies, especially new ones, are disproportionately the source of job creation in any economy, and they have been especially hard-hit. What’s needed is to get banks out of the dangerous business of speculating and back into the boring business of lending. But we have not fixed the financial system. Rather, we have poured money into the banks, without restrictions, without conditions, and without a vision of the kind of banking system we want and need. We have, in a phrase, confused ends with means. A banking system is supposed to serve society, not the other way around.

That we should tolerate such a confusion of ends and means says something deeply disturbing about where our economy and our society have been heading. Americans in general are coming to understand what has happened. Protesters around the country, galvanized by the Occupy Wall Street movement, already know.

[Jefferson23]

5. In response to your question about Obama not incorporating Stiglitz's advice.

If I can find the interview I'll post a link, but this was awhile ago. Stiglitz was
speaking of Obama during his campaign period, and he called Stiglitz and according
to him, Obama sought his advice. There was no further contact with Stiglitz after
the election, as far as I know. Considering who Obama later employed, Summers and
Geithner, it's not hard to understand why he left whatever advice he sought from
Stiglitz behind him.

A great loss, no doubt about it.

[bemildred]

3. He does not mention the multi-national companies.

The "ship everything around the world three times" business model is horribly energy inefficient, and in a world of rising energy costs, it will fail.

Otherwise: ++1.

[CAPHAVOC]

9. I think so too.

Cheap shipping is the lifeblood of the global economy. Our mistake? Free trade treaties. This author is a lunatic.

[Boxerfan]

4. I call BS.....

The cause of economic collapse pre-depression was NOT low food prices...

It was market speculation driven-everyone was betting on "the margin".
At least in a most simplistic term. And the root cause will always be with us-Greed.

The cure was localized infrastructure/labor investment based on a strict buy American policy.

America has forgotten far too much & I'm not that old...

The most important word I never hear is:

TARIFF

The taxation of a foriegn product designed to equalize labor cost dynamics.

[bhikkhu]

12. Farm bankruptcies peaked in 1925

from http://www.ers.usda.gov/amberwaves/april04/findings/AreBankruptcies.htm

Though I'm more inclined to say that simplistic explanations are wrong, as a rule. There was certainly more than low food prices, and more than market speculation, and keep in mind that the raising of tariffs was one trigger of the downward spiral that Roosevelt had to deal with.

Overall, there are far more ways to screw things up than to fix them!

[nineteen50]

13. Have you heard of NAFTA and WTO?

[Hawkowl]

18. Sort of...

I have read Stiglitz on this subject before and I think the article is missing his key point. The fact that food prices fell forced many small farms to be unprofitable which led to a HUGE number of former farmers becoming permanently structuring unemployed. No wages and no income means no demand for anything, including credit. Yes speculating on margin led to a credit collapse (speculation on food prices which plummeted along with other commodities due to technological improvements in production).

There is a very real parallel with our current situation. Repeal of Glass-Steagall and unregulated, fradulent speculation which has led to a severe collapse in demand for credit (completely foreseeable). We also have massive structural unemployment once again with the literal dismantling and shipping overseas of the majority of our manufacturing infrastructure.

I agree completely with your position that tariffs are essential. We need to penalize companies for not making things here. Until we start getting people back to work and wages increasing, we will be in a permanent depression.

[dkf]

6. I wish wish wish I had learned programming language instead of two years of a foreign language.

I completely forgot most of what I learned, and now I am left with a program that needs tweaking that I can't make heads or tails out of.

Our educational system isn't set up for our needs, at least not mine.

[supernova]

7. This article fits my experience

At the most abstract level, he's talking about moving from the publicly traded company with senior management who cash out their incentives early at the least sign of company complexity or difficulty to a system of co-ops and locally owned businesses who are more responsive to the communities in which they reside and do business.

I was a knowledge worker in the IT industry for 16 years. Since 2002 I've suffered layoffs three different times. This last time for three years.

ENOUGH!

I realize I am never going back to ABC multinational corp. I will never have a corner office, nor a company expense account. And I don't desire it. That's right, I wouldn't want it now if they offered it to me on a silver platter. They don't want me? I sure as hell don't want them.

Yet, I am just shy of my 50th birthday. I still have many productive years left. What am I to do with that time?

I am going back to school. Culinary school. I will have my own business and I am starting out at the farmers' market to build my audience. Certainly I'll make less money, but I'll be a damn sight happier.

[Owlet]

10. Good for you!

and good luck in your endeavors, school and business.

[lib2DaBone]

8. We've allowed corporations to gut our manufacturing base....

... we've given all our critical technology to China... even gave them the super-computers to make it all happen.

We could not fight a world war right now if we wanted to... we no longer have the steel mills or factories to produce aircraft and tanks. (a drone war is not going to stop an invading army of millions)

Every Congressman and Senator that took campaign contributions from corporations to allow this should be put in jail for treason.

[chervilant]

11. How funny...

(and NOT funny ha-ha...)

The Hoi Polloi is becoming increasingly aware of the importance of our critical thinking skills and our ability to create. We ARE witnessing global socio-economic change, and we will be pressed to put these atrophied skills to good use. I realize we must go through our doubts and our discussions before we focus our collective energies on creating a new way. I sincerely hope that we can prevail, and end the global hegemony of the sanctimonious and sociopathic Corporate Megalomaniacs who've usurped our media, our politics, and our global economy.

[dixiegrrrrl]

14. This is a fantastic article.

I am so glad you posted it.

[bhikkhu]

15. Ugh...it sounds like 1998 again

"When we come out the other side, there will still be farmers and manufacturers — but even they will be leveraging the power of the Internet to create new wealth. Everybody will. "

Perhaps true to some extent, but the whole thing about moving away from a manufacturing and resource economy to a service economy - that's the theory that rationalized all sorts of obnoxious policies that led to the collapse 99/00.

However well the tale might be spun, you can never make me believe that a healthy economy can be built around people selling each other products and services which have their ultimate origin elsewhere. Wealth has always been founded upon real resources and manufacturing; the internet is no more a source of wealth than the banking industry is - its just a modern facilitator. Like banking, it has its role, but shouldn't be mistaken for what it is not, lest our lunch be eaten by those less theoretically deluded.

[JayhawkSD]

17. Or, as my father used to say some thirty years ago,

"Hell, we can't all make a living selling each other hamburgers."

I, too, think there are flaws in the piece, but I totally agree with the basic premise. We cannot go back to what we had, and that should be self evident; what we had collapsed. We should be looking for a new economic basis, on the order of the industrial revolution, and we are not even looking for it. And don't give me that "information ecomomy" crap either. Information will play a role, but to paraphrase my father,

"Hell, we can't all make a living sellinf each other credit reports."

[AdHocSolver]

16. There are two sources of wealth creation -- agriculture and manufacturing.

The service economy is a myth. A service economy cannot support its population in a middle class life style.

When just about everything we buy is made elsewhere, we have nothing to trade for other people's production. This is the reason our trade deficit is so high and this country has such huge debt. When just about everything Americans buy can be made more cheaply elsewhere, the U.S. can never produce enough exports to eliminate its huge trade deficit. The only solution is to reduce imports by manufacturing locally.

Japan has few natural resources. It became a very wealthy nation because it manufactured goods. China became a wealthy creditor nation by manufacturing.

Does Stiglitz really believe that we can have a thriving economy by becoming a nation of hamburger flippers and Walmart greeters?

It isn't the research per se that creates jobs and wealth. It is the manufacturing jobs that result from that research that creates jobs and wealth.

The corporations have taken the technology Americans developed and used it to create jobs in low wage countries such as China.

There is no reason to doubt that if they are allowed, the corporations will transfer new American technology elsewhere.

The only way to have American research benefit the U.S. economy is to take the profit out of offshoring jobs.

This means revoking treaties such as NAFTA, imposing tariffs and import quotas on those imported goods that make it profitable to export jobs, getting rid of the IMF, the WTO, and the World Bank, and changing the tax code to disallow corporations from avoiding taxes on profits made by outsourcing jobs.

[DeSwiss]

19. We can't see the forest for the trees.......

[font size=3]FUTURE SHOCK[/font]

''While covering Congress, it occurred to us that big technological and social changes were occurring in the United States, but that the political system seemed totally blind to their existence. Between 1955 and 1960, the birth control pill was introduced, television became universalized, commercial jet travel came into being and a whole raft of other technological events occurred. Having spent several years watching the political process, we came away feeling that 99 per cent of what politicians do is keep systems running that were laid in place by previous generations of politicians. Our ideas came together in 1965 in an article called 'The future as a way of life', which argued that change was going to accelerate and that the speed of change could induce disorientation in lots of people. We coined the phrase 'future shock' as an analogy to the concept of culture shock. With future shock you stay in one place but your own culture changes so rapidly that it has the same disorienting effect as going to another culture.'' ~ Alvin Toffler, Future Shock (1970)

K&R

[bemildred]

20. +1.

They keep trying to keep the old game alive, and that is failing and will fail, until they suck it up and deal with technological change. They want to grow forever and push technology, while keeping the same old static conservative dogmatic political class in power.

[DeSwiss]

21. Exactly.

- This is what happens when we don't teach children to think critically. So they wait around for someone else to find the answers.......

[Kablooie]

22. So we are in the beginning of the fourth turning.

It's occurring right on schedule.

History repeats just as predicted.