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July 20, 2009

It's The Economic Paradigm, Stupid!

-- by Dave Johnson

I am happy to announce that beginning today I will be working as a Fellow and blogger with Campaign for America's Future. This post introduces the areas I will be pursuing.

The economy is terrible. There aren't enough jobs. Most of the jobs that are still there are not paying enough for people to keep up, and people are afraid they could lose them tomorrow. So we all have too much debt. We have too little health care. We have too much stress. And in the bigger picture we have too little power to do anything about it.

They say we're reaching a "bottom" and that there are "green shoots." But I am afraid that this isn’t your father’s recession. I'm afraid this economy isn’t a pendulum that has swing too far in one direction, ready to be pulled by natural forces back to the other side. I am afraid that this isn't a "business cycle" pattern with a fall, then a bottom, then a recovery where all the shoppers return to the stores, all the jobs come back and growth picks up where it left off. Even "green shoot" optimists admit there will be few new jobs if there is any recovery.

It may be that we are not in a period of waiting for things to "get back to normal." Many people think that this economic collapse IS the return to normal.

For decades concerned observers have warned about problems with the "sustainability" of our economic paradigm. If you look at charts describing changes in the economy, environment, population - all kinds of things - you see that in recent decades they all change and start to move, often exponentially, in directions that obviously cannot be sustained. They look like this:

A wise man once said that when something is unsustainable it can’t be sustained. And here we are. A very good explanation of the problem of unsustainability of our economic paradigm is The Story Of Stuff. "It's a linear system and we live on a finite planet."

It is not just the economy out of whack. The business practices that brought us here -- overextraction, overextension, overleveraging, overconsumption -- have also whacked the planet’s resources. The fisheries are increasingly depleted. The aquifers are increasingly drained. The forests are increasingly logged. The landfills are increasingly full. And, of course, the planet is increasingly hotter.

Our economic system has also taken a toll on the people. Too many hours at a stressful workplace with too little sleep have burned many of us out. Our thinking and identity are about our jobs, not our spirit and character. Our values are devoted to markets with many of us placing making money over loving and caring for families and others. And there's no time for that stuff anyway. We have become consumers instead of citizens and humans. Decades of falling wages, decreasing savings and increasing debt have tapped us out. Consumption has used us up. And we’re fed up.

So things reached a breaking point and broke down. This has been coming at us for decades. And here we are.

If this economic collapse was the consequence of decades of an unsustainable economic model, then what do we do?

The government, of course, has been working to fix this problem within the context of the current failed economic system. And in that context they have been doing a good job. They lowered interest rates to encourage even more borrowing. The stimulus pumped borrowed money into the economy to cover the loss of demand from people and business. They raised the FDIC protection levels so we're not all wiped out if banks fail. They bailed out overleveraged financial institutions so they could again provide credit.

Of course the stimulus is better than none. We need unemployment benefits and infrastructure investment. And investment has a longer-term payoff.

But what happens after the stimulus? What do they think will drive our economy back to what they think of as normal? Will it be renewed manufacturing of cars? If we don't bring back the good-paying jobs, who will buy them? Same for houses. Same for TVs and appliances and furniture and jewelery and expensive shoes and all the rest.

In a June interview on the Lehrer News Hour, Treasury Secretary Geithner said that they are doing what they need to do to "get growth back on track."

Back on track? Does he mean we will fish out the remaining fish? Cut the rest of the trees? Drain the rest of the aquifers? Take the tops off the rest of the mountains? Does he mean that we will run up the rest of the credit cards? Will we cover the rest of the land with even bigger houses and subdivisions and strip malls? Will we export all the rest of the jobs? Will we hand the rest of the nation's income and wealth over to an elite few?

I don't think they are going to get things back "on track" by applying more of the same "solutions" that got us to where we are today. Will they bail out more companies, making them even too bigger to fail? None of the fixes will work if the problem is that we have reached the limits of sustainability of the economic model we have been following for decades.

So what can we do to change the system itself? How do we restructure the model - the economic paradigm - in ways that let We, The People enjoy and share the benefits of our economy? There are a number of clues that I will be writing about in my work with Campaign for America's Future. Maybe we can follow the clues and find answers.

One obvious part of problem is that we have an economic system in which we tolerate a few people controlling –- and thereby getting most of the benefits from –- things that should belong to and be controlled by all of us. Aren't We, The People supposed to be making the decisions here? And shouldn't we make decisions that benefit all of us instead of just a wealthy few?

At the center of this problem is the role of the corporation in our society. Corporations have amassed immense power and that power is used to control the country's decision-making processes, always to the benefit of the wealthy few. Getting a grip on this problem requires us to regain understanding of why we have corporations in the first place. We, The People enacted the laws that allow corporations to exist because we felt that it would be to our benefit to do so. And to the extent that they are now benefiting a few at the expense of the rest of us, we can change the laws. Let that sink in.

Another thing we have to get control over is the concept of externalization. Why do we allow companies to externalize their costs while internalizing the profits? In other words, companies are allowed to push costs onto the rest of us, but are not asked to share the resulting profits with the rest of us. We even let them see and treat people (us) as "costs" -- a layoff pushes the responsibility to support a worker onto the community while the company keeps the wages they were paid.

When a company replaces a worker with a machine, the company pockets the wages that would have gone to the worker and the worker is discarded. But now we are learning that eventually enough workers are discarded that there is no one to purchase what those workers replaced by machines were making. So the company and the economy lose, too. This just doesn't work.

Here is a big one: We need to understand that actually making things is what drives an economy. America became an economic powerhouse because we made things here. China is an economic powerhouse because they make things there. I'll be writing about that a lot.

These are just a few of the things that I will be exploring in the coming months. Let's see where it goes.

*About the title.

Posted by Dave Johnson at July 20, 2009 8:49 AM


Comments

Hey Dave, as a devout conservative I must say that I agree with you on many levels. The consumer mentality (or the overconsumption) that we have characterized as normal is the paradigm that must be curtailed. I also agree that exporting manufacturing jobs, as well as becoming a country that pumps out lawyers but cannot produce skilled manufacturers is certainly a problem which I imagine the "problem trail" leads back to primary education and what parents are teaching (or failing to teach) their children. LAUSD has just about as many administrators as it does teachers for God's sake!!! Again, I appreciate your post and I'm looking forward to reading how you propose to shift this economic paradigm to where individuals and corporations seek sustainability.

To give you one counter (and Im not even sure if its completely true), these "elite few" that horde all the resources seem to me to be both Democrats AND Republican backers. Even Obama was substantially supported by Goldman-Sachs, GE, JP Morgan, George Soros and on and on...my point is I wonder what your thoughts are on the fact that this is less partisan and more 'special interest'/lobbyist built mentality that keeps the rich, rich and We the People blind.

Thanks

Posted by: bpgiff [TypeKey Profile Page] at July 20, 2009 11:14 AM

Gee, that graph looks a lot like the California state budget over the last dozen or so years. Talk about unsustainable spending.

You forgot "Drain the last dime out of the last taxpayer with money."

Posted by: Scorpius [TypeKey Profile Page] at July 20, 2009 11:55 AM

I've given the jobs angle some thought, and I think the basic problem is (still) globalization and cheap labor in the developing world. It is simply too cheap to manufacture goods in these countries and then sell them at a slightly lower price than U.S. goods, then skim the profits. What I would propose is this:

1.) Renegotiate trade agreements to include labor, environmental and product safety standards.

2.) Even with these factors eliminated, the lack of a developed legal structure in many countries (companies don't have to spend money to avoid lawsuits) and several other factors would still make it a good deal cheaper to move overseas. So you impose import tariffs appropriate for each kind of import (say, 10% for cars if it was an average of 10% cheaper to build cars in other countries and sell them here). This way, not only would the cost of production be nearly equal and workers would be on a more level playing field, we would gain an additional source of tax revenue to be used in the direct creation of good-paying jobs or the provision of important social services (ie health care, food stamps, etc).

Posted by: Justin [TypeKey Profile Page] at July 20, 2009 9:02 PM

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