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Posted on Thursday 1 January 2009

Our economy has been in a dream world for a longer period of time than it was leading up to the Great Depression in the 1930’s. Back then, the whole Stock Market was in a ten year "bubble" – a time when Wall Street lost control and inflated prices way above any contemporary meaningful value.
 
This time, we’ve been at it since Reagan took office in 1980. Besides the longer duration, there are a number of other differences. First, the government has been involved this time. Reagan dramatically cut taxes while also increasing spending, throwing us into an almost thirty year period of rampant deficit spending with only brief interruption. The country has been operating on credit too. As time has passed, Americans have followed the government’s lead – running up uncomfortable levels of personal debt. We haven’t listened to Clinton’s Campaign song, "Don’t stop thinking about tomorrow. Instead, we’ve lived "Ponzi" lives – as if some future windfall would pay off the present fiscal irresponsibility. Well, it’s "tomorrow" and there’s no windfall coming. That much is for sure. I think the same thing was sort of true in the 1920’s before the last crash.
Another dramatic difference has been the parade of specific financial "bubbles" that have drifted through our economic picture, unacknowledged by the general populace until they "popped." These "bubbles" have created dramatic illusions in our entire economy.

What happened "back then" [1929-1932] was that nothing effective happened to readjust Americans to their new circumstances [see the top figure]. As the Market fell, unemployment rose. There were runs on Banks, causing many of them to fail. There was a severe drought in the West causing a whole segment of our population to lie as fallow as their fields. There was a pox upon the land, but the worst part was in the collective psyche of the people – Depression. And so things spiraled downward unabated for almost four years. F.D.R. was able to stop things from falling, but it didn’t turn around until we found a shared purpose – something to fight for.

This current crisis has a known cause. It happened because a group of people decided to dismantle a part of our government that was, in retrospect, essential. We called it Regulation, but it was more than that. It was an "Oversight" of our economy similar to the Laws we have for Criminals. We had constructed a Police Force of sorts to be sure that the forces operating in our economy were well known to us – above board. It was as important that the dealings of our Capitalism were transparent and observed as it was that they were kept honest. My point is that we had learned what we needed to do, and we stopped doing it.

So, what are our chances. After thinking about it for several months, it looks good to me. We know what to do. Re-regulate the economy. Eliminate the secret markets that have been used to get some people rich beyond belief and marginalize the rest of us. We need an economic stimulus plan that keeps people working while we rediscover ourselves. We need to have deficit spending for a while, but for a different reason than before. We need to get out of the fix-the-world mode. This whole business of "Superpower" needs to be history, not present. But I think that the biggest force that will determine the outcome is the willingness of Americans to accept the truth and to adapt to living with the true standard of living this country is capable of producing, instead of the dream-lives we’ve been living with for a very long time. Less stuff! And "Financial Elite" has to go. I don’t mean cut back, I mean go away. Our Wealth Inequity is way beyond out of hand. Corporate bonuses, Hedge Funds, Financiers capitalizing on loopholes in our system, all of that has to go. Even if we have to become a little Marxist in the process, so be it. They’ve had their days in the Sun, and the result isn’t pretty.

Back in the 1930’s, they wanted things to "come back," and they never did. The reason is obvious in retrospect. What they wanted back was never really there in the first place. The same is true today. Our lives have been lived in illusion. If we accept the truth and learn to live with it, we’ll be fine . The  red line on the graph below is someone’s mathematical very rough guess at where the Dow Jones Index/Consumer Price Index really ought to be [see iTulip and associated links]. That would put the DJI somewhere between 4,000 and 6,000. The point is not the actual number. The point is that we probably have more to fall. What matters is that we don’t create an economy that promotes it continuing to fall below its actual worth, which is what happened in the 1930’s:
 
If we don’t adjust and we start hoarding what we have waiting for another "bubble," we’ll reproduce the past and slide into the gloom. I’ve finally come to believe what the economists say. It’s our mass psychology that will make us, or break us…

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