A review of three books on the economic doldrums and what to do about them in the latest NYRB offers a rundown of the reality we are in that is too often missing from any discussion of the obstacles to real recovery. Among the many nuggets of platinum in this article is the following history lesson:
What is rarely recognized is that even if the US can emerge from a weak economy within a few years, the economic foundation that existed before the cataclysm of 2007 and 2008 may not be adequate to restore the widely shared prosperity the US needs. For more than three decades, economic growth had been largely dependent on rapidly rising levels of debt and on two major speculative bubbles, first in high technology and dot-com stocks in the late 1990s, then in housing in the 2000s. What will now replace them?With banks much more reticent to extend credit of any kind, consumer or business, with wages falling relative to the needs for consumer activity to help produce economic activity sufficient to grow the economy; with outstanding private debt in the billions, much of which can never be recovered; with all this and so much more, we face far more intractable problems than just "jobs". We face far more bleak prospects than high deficits. The reality is that even should the economy of 2011 begin to chug along at a rate sufficient to begin bringing down the unemployment rate (not counting the millions who have simply stopped looking for work), it will be years before the economy reaches the peaks of the late 1990's, and the bubble years of 2005-2006.
Income inequality widened sharply in these years and average wages stagnated for the many while record high fortunes were made by the few. The financial security and access to adequate health care and education for children that had defined the middle class since World War II have eroded rapidly. Meanwhile, investments in infrastructure such as transportation, as well as clean energy and education, have been badly neglected. All this raises doubts about America’s future economic vitality whether or not it balances its budget, and it does so at a time when international competition from Asia and the Southern Hemisphere will pose serious challenges during this century. How will Americans live a decade from now?
As long as these facts are off the radar, there is no way to have a serious discussion of policy choices. As long as our politicians continue to pretend that the markets work magic, there is little hope of real investment in the public sector to help get people back to work and stimulate consumer demand. As long as tax cuts are the only answer to our largely imaginary fiscal woes, there is little prospect of serious discussion of what would constitute our economic future.
As long as people are not given the facts of our situation, there will be on-going magical thinking and fantastic images of some glorious future awaiting us. The reality, and the prospects for the future, are far different.