1 Boring Old Man

Life Without Bubbles
By PAUL KRUGMAN

Whatever the new administration does, we’re in for months, perhaps even a year, of economic hell. After that, things should get better, as President Obama’s stimulus plan — O.K., I’m told that the politically correct term is now “economic recovery plan” — begins to gain traction. Late next year the economy should begin to stabilize, and I’m fairly optimistic about 2010. But what comes after that? Right now everyone is talking about, say, two years of economic stimulus — which makes sense as a planning horizon. Too much of the economic commentary I’ve been reading seems to assume, however, that that’s really all we’ll need — that once a burst of deficit spending turns the economy around we can quickly go back to business as usual.

In fact, however, things can’t just go back to the way they were before the current crisis. And I hope the Obama people understand that. The prosperity of a few years ago, such as it was — profits were terrific, wages not so much — depended on a huge bubble in housing, which replaced an earlier huge bubble in stocks. And since the housing bubble isn’t coming back, the spending that sustained the economy in the pre-crisis years isn’t coming back either.

… So what will support the economy if cautious consumers and humbled homebuilders aren’t up to the job? A few months ago a headline in the satirical newspaper The Onion, on point as always, offered one possible answer: “Recession-Plagued Nation Demands New Bubble to Invest In.” Something new could come along to fuel private demand, perhaps by generating a boom in business investment. But this boom would have to be enormous, raising business investment to a historically unprecedented percentage of G.D.P., to fill the hole left by the consumer and housing pullback. While that could happen, it doesn’t seem like something to count on.

A more plausible route to sustained recovery would be a drastic reduction in the U.S. trade deficit, which soared at the same time the housing bubble was inflating. By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending. But it will probably be a long time before the trade deficit comes down enough to make up for the bursting of the housing bubble…

In short, getting to the point where our economy can thrive without fiscal support may be a difficult, drawn-out process. And as I said, I hope the Obama team understands that. Right now, with the economy in free fall and everyone terrified of Great Depression 2.0, opponents of a strong federal response are having a hard time finding support…

But once the economy has perked up a bit, there will be a lot of pressure on the new administration to pull back, to throw away the economy’s crutches. And if the administration gives in to that pressure too soon, the result could be a repeat of the mistake F.D.R. made in 1937 — the year he slashed spending, raised taxes and helped plunge the United States into a serious recession. The point is that it may take a lot longer than many people think before the U.S. economy is ready to live without bubbles. And until then, the economy is going to need a lot of government help.

I really like Krugman. His column calms me in that he’s confident that the deficit spending economic recovery package will do the job. I personally worry about that. He’s now mostly into cautioning us. Earlier, he was cautioning us against not jumping onto this crisis with F.D.R. furor. Apparently, he’s comfortable that we’re going to do just that. Now he’s cautioning us to stay at it for a long time. Shutting down early is a lesson we learned in the late thirties, and he’s urging us to stay with the task.

But the intriguing thing about this article is that he seems unclear about where we’re headed in the long run. Any fool can see that the labels on our clothes [and many of our cars] don’t say Made in the U.S.A.  Our fruit and vegetables are flown in from the more temperate climates. Our electronic gizmos come from asia-elsewhere. Our economy has thrived in the financial sector, in white collar jobs, and in building as if there were no end in sight. We’ve been the world’s best customers [and it’s helped the world to have us consuming like crazy].

But now we need a new direction and I’m thinking Krugman is not sure what that direction is going to be. I don’t know either. I take his point, but I’m not sure we’ve ever had a time in this country without "bubbles" – King Cotton, Tobbaco, Manufacturing, Industry, Cars, Wars, Technology, Housing, Oil, etc. Our population has moved from boom to boom – eg Detroit which is an amalgam  less-thans who flocked there for work in the auto boom. America itself is where our immigrant forefathers flocked to find lives in one boom or another. Still is, as a matter of fact.

Krugman’s point is larger than simply advice. He’s hinting at something big. America [the whole thing from pole to pole] is the "last place." The old world had been at it for a long time and was getting pretty crowded – kind of in a rut. Then they found this place  and it took centuries to fill it up. Our march west got to the Pacific, and there weren’t any more places to go. So now we have to face the music and take care of what we have – Planet Earth. That’s an increasingly big deal. At the least, it means POPULATION CONTROL. And it means America has to beat the ENDLESS GROWTH metaphor of our economy. America itself is a BUBBLE, and, as Krugman says, it’s time for us to find our rightful place and our rightful vocation, rather than moving from BOOM to BOOM. Obama spent a lot of time talking about the "American Dream." But as Freud says, "Dreams are wishes." The American Dream may be Cindy McCain’s or Bernard Madoff’s lifestyle, but enough with that already. How about something more managable like one home, a fulfilling job, good friends, and reasonable health?