As is obvious from my last few posts, I’ve decided to start keeping tabs here at The Teeming Brain on doomer-sounding economic news stories, essays, analyses, op-eds, and rants. Currently the media are presenting a veritable cornucopia of these things, and they seem likely to keep it up for a very long time to come.
What’s most interesting to me about the current crisis, aside from the fact that it has made economic news as gripping to read as a thriller novel, is the way it heralds a profound and far-reaching change in the world as we all know it. This fact has been pressing more and more heavily upon my thoughts in recent weeks. A number of items appearing in the mainstream media indicate that I’m not alone.
Two days ago Michael Mandel asked in an article for Business Week, “How Real Was the Prosperity?” The question refers to the unprecedented and explosive acceleration of economic growth that marked the past several years of American life. Naturally, this growth was accompanied by prominent signs and, perhaps more importantly, an overall sense of increasing material wealth. We all felt it, even the ones of us who didn’t necessarily share in the actual money and new toys. Life in America became like a giant carnival staged in a 24-hour, multilevel shopping mall. It seemed every last one of us got a cell phone, an iPod, digital cable, high-speed Internet, a MySpace page, a McMansion, designer clothing, a designer hairstyle, an SUV, a wallet full of credit cards, several home equity loans, and a shot for stardom on American Idol.
But now the carnival is over. Now we’ve slid into a period of acute economic turmoil, with last summer’s scary seize-up in the financial markets blossoming into today’s mounting credit and banking crisis, and with the epic real estate run-up of the past several years proving itself to be not just a bubble but the mother of all such bubbles, and with the whole mess being underwritten by profligate lending practices that were encouraged in the service of fueling exotic new investment vehicles that dispersed “toxic” debt throughout the entire financial world. And standing astride it all is the Colossus of the tapped out, indebted, and increasingly demoralized American consumer, whose spending has sustained not just America’s economic growth but also the rest of the world’s from the very beginning of this brave new era of globalization.
Now that this collective body of interconnected economic hokum has finally caught the flu — or maybe pneumonia is a more apt metaphor (or perhaps bubonic plague?) — the big banks and other financial industry players look to the American Fed to “cure” them via rate cuts and so on. “But,” says Mandel in Business Week, “the underlying problems that ail the markets and the economy cannot be waved away by the Fed’s magic wand. In truth, we’re at the beginning of a long, arduous process of figuring out how much of the post-tech bubble prosperity was real and how much was the result of a credit-induced frenzy. The answer will determine what we can expect.”
By “what we can expect” I think Mandel is referring to the specific, measurable economic outcomes of the present crisis. Obviously we cannot know in advance what these will be. Prophecy is a risky business. Only time will tell what new arrangements will emerge out of the swamp of our present problems. Personally, I expect bank failures and such, but these may not come to pass.
But even though it’s too early to know specifically what awaits us, I think it’s completely safe to say that we will witness, and are even now witnessing, a revolutionary transformation of the way America does business. And this will entail a still more profound transformation. Our fundamental way of life will not emerge unaltered from all of this craziness and volatility. All of the assumptions of economic neoliberalism and globalization that have dominated and shaped the past 30 years of life in America and elsewhere are now called savagely into question, and this means we’re looking at a real upending not just of the financial and economic worlds but of our collective cultural worldview and intellectual/emotional equilibrium.
As I said, I’m seeing this hunch mirrored in a number of recent media stories. The International Herald Tribune said three days ago that we stand “On the cusp of economic history.” The article bears quoting (with emphases added by me):
Is economic history about to change course? Among the chieftains of politics and industry gathering in Davos for the World Economic Forum on Wednesday, a consensus appears to be building that the capitalist system is in for one of those rare and tempestuous mutations that give rise to a new set of economic policies.
As the prospect of a U.S. recession overshadows a tense and drawn-out election campaign in the world’s most emblematic market economy, a corrosive cocktail of factors is eating away at old certainties: Power is steadily leaking from West to East. Income inequalities are rising in rich countries.
And signs of a protectionist backlash are multiplying as worries about climate change, the rise of state-run investment funds and the bursting of the recent credit bubble give novel ammunition to those in the West who question free markets and clamor for more shelter from globalization.
What exactly will emerge when the dust settles is hard to predict, economists and executives say. But this much seems clear: With the frontier between state and market once again up for grabs, the era of easy globalization is over — and big government in one form or another is back.
The article goes on to say more about growing income inequality and other issues that have called into question the foundational assumptions of globalization. Then it concludes with a hint of momentous, imminent change:
A year and a half ago, researchers at [Daniel] Yergin’s group [Cambridge Energy Research Associates in Boston] drew up a number of scenarios for the world economy in 2030. One of them, “Asian Phoenix,” saw a world in which protectionism was kept at bay and Asian economies kept underpinning swift global growth. The other, “Global Fissure,” was a troubled world economy with widespread economic nationalism and a backlash against globalization.
At the time, the latter scenario seemed to be the more remote. But that may be changing, Yergin said. “What seemed highly unlikely,” he said, “could become rather more likely.”
The Financial Times sounds a similar note in “Ins and outs of the ups and downs,” published just today:
There is a growing belief that this spectacular sell-off [i.e., the global stock rout of the past few weeks] portends more than just a periodic shift in the market cycle. Indeed, the events are now so dramatic that they are prompting many to call into question the entire capital market architecture that has emerged over the last decade, along with the approach the world’s financial authorities have adopted since the last big break in the market — the bursting of the internet bubble in 2000.
“We have to pay for the sins of the past,” says Klaus Schwab, founder of the World Economic Forum, which is currently holding its annual gathering of political and business leaders at the Swiss mountain resort of Davos. Or as George Soros, the legendary hedge fund manager, says: “This is not a normal crisis but the end of an era.”
“The end of an era.” And there’s the rub. Eras don’t often end peacefully on a happy note of felt security. A review of history and the eras into which we commonly divide it reminds us that the end of an era involves the end of a cultural worldview, and people don’t lightly bear this overturning of their basic assumptions about life.
That this historical tide, cultural eruption, economic reversal, bubble-bursting of an era, is occurring during a U.S. presidential election year, may prove to be of epochal importance. A significant article from yesterday’s New York Times titled “Voters Show Darker Mood Than in 2000” taps into this fact very perceptively, so I’ll quote it at length:
Obviously, Sept. 11 and its aftermath have changed the country in countless and irretrievable ways. But even beyond the emergence of war and national security as pre-eminent concerns, there has been a profound reordering of domestic priorities, a darkening of the country’s mood and, in the eyes of many, a fraying of America’s very sense of itself.
While not universal, that tone pervaded dozens of interviews conducted over the last week with Americans of all political stripes in 8 of the 24 states that hold primaries or caucuses on Feb. 5, as well as with historians, elected officials, political strategists and poll takers. As the candidates fan out to New York and California and here to the heartland, they are confronting an electorate that is deeply unsettled about the United States’ place in the world and its ability to control its own destiny.
Since World War II, the assumption of American hegemony has never been much in doubt. That it now is, at least for some people, has given this campaign a sense of urgency that was not always felt in 2000, despite the dramatic outcome of that race.
Several writers and historians remarked on the psychological impact of such a jarring end to the Pax Americana, just as it seemed that victory in the cold war might usher in prolonged prosperity and relative peace (save the occasional mop-up operation). Its confluence with an era of unparalleled technological innovation had only heightened the nation’s sense of post-millennial possibility.
Now, Americans feel a loss of autonomy, in their own lives and in the nation. Their politics are driven by the powerlessness they feel to control their financial well-being, their safety, their environment, their health and the country’s borders. They question whether each generation will continue to ascend the economic ladder. That the political system seems so impotent only deepens their frustration and their insistence on results.
….Susan C. Powell, a 47-year-old training consultant who lives in a Kansas City suburb, said that what she feels is not so much hopelessness as doom.
“I know plenty of people who are doing worse than they were,” Ms. Powell said, “and nobody’s helping them out. People’s incomes are not keeping pace with inflation. People can’t afford their homes. People in their 30s and 40s, middle-income, and they don’t have jobs they can count on or access to health care. How can we say that we’re the greatest country on earth and essentially have the walking wounded?”
This all resonates powerfully with my own personal observations. For a year now I’ve been noticing the vivid slide among my immediate network of family and social acquaintances into exactly the same mood of disturbance and despair described by the Times. Many of these people are ones I never would have expected to express such thoughts and feelings. They don’t go on about it like I do, and sometimes they tire of my unending philosophical focus on the matter, but all the same, they openly say in their respective ways that they feel America is in a bad place, and the economy is screwed, and the political system is broken, and most or all of the politicians are crooks and liars, and the news media are brain dead, and bad times are upon us, and even worse times await. Sometimes I grow amazed at hearing and witnessing this shift in mood. When did everybody become a pessimist like me?
What is all boils down to is this: The tone of human society is going to be affected as much by the psychological undercutting of our collective sense of stability, security, and orientation as by the actual material effects of whatever new economic order ends up emerging from the bubbling cauldron of current events. The reason is simple: It’s a profoundly troubling thing to be told that you’ve erected your way of life and your sense of self and well being on a pack of pernicious lies.