Weekend Economists Wild, Wild, World Roundup February 17-19, 2012

[Demeter]

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

http://www.alternet.org/story/154056/why_going_%27back_to_normal%27_is_no_longer_an_option_for_the_american_economy_--_and_where_we%27re_headed_now?page=entire

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.

Stiglitz thinks that we’re going through much the same kind of process again now, as the postwar manufacturing-based economy that saved us 80 years ago moves offshore, leaving our manufacturing workforce just as surplus and idle as those 1920s farmers were. In his view, the current phase shift is taking us away from industry-as-we’ve-known-it, and on into an economy that will have us relying more and more on many different kinds of knowledge work. (This isn't a new thesis; Daniel Bell was writing about it back in 1973.) But Stiglitz goes on to point out that because people are misunderstanding the moment, we're investing in the wrong things...