I was lounging at the coffee shop, wrangling over the Gobal Meltdown with a Harvard-trained economist.
“Yeah, the pundits daily publish cheery predictions of a “recovery,” I rattled away, “you-know, blips in housing prices, output in the Asian sector, whatever.” Problem is, these predictions serve mostly to obscure a fatally flawed DOA economic model that is proving its inconsistencies and weaknesses under a growing pile of leading economists, guys like Joseph Stiglitz, he who has declared that “recovery,” will not be V or U shaped but more like an L or a W — as in Western economic systems that are junkies for growth.
“This is part of a cycle. We have these all the time,” he said.
I reminded him that Friedman-ite neo-liberals Greenspan and Bernanke and other “free marketers,” the so-called Masters of the Universe, boasted they had gained scientific control over the economy, convincing themselves and nearly everyone else that steady employment and 2-percent growth could be ridden forever like a trained killer whale, demonstrated so they said by the FED mitigating the 2000 “New Economy” Dot Com collapse by pumping liquidity into the market.”
“They were either deluded … or they were lying.”
The simple story is when the seemingly unlimited more-more-more of the fifties and sixties collided with market saturation, mere replacement of products and accompanying industrial “stagnation,” the orthodox reaction was lower production costs, shift to service economy and nurture the bogus, failed alchemy of “financialization,” consisting of the creation of a vast pyramid of paper (fictional) wealth. A basic, fundamental truth of economics, that capital and cash money are very different critters, has been obscured by the enhanced use of money as a measure of wealth, when in fact money is merely an agreement of a representation, a sign of value for purposes of exchange. Capital consists of things of actual material value, land, commodities, resources. Much of the growth of the last three or so decades was based (partially) on the growth and capitalization of fictional paper wealth, the financialization of the US economy – one bubble after another, aided by spasms of deregulation following whichever disaster du annum, the S&L hustle, the Dot-Com shakedown, la-dee-da.
The rupture of last year’s bubble of bubbles exposed and ended financialization, what had become the only game in town. Your exotic financial Frankenstein monsters, Credit Default Swaps and Collaterized Debt Obligations, etc. which generated so much cash, amid stupendous risks that a clever sixth-grader could calculate on a napkin, reached the terminus of a finite system Wall Street arrogantly deluded itself into thinking infinite. The desperation has been amply displayed by the latest scheme of capitalizing not cash nor debt, but literal death, with the recent life insurance ploy.
So what do we do now?
A sort of blueprint is visible in a collapse in Peru in the early 20th century. Owing to a global spike in the rubber trade, traders and landed gentry in the upper Amazon made great profits practicing unsustainable, extractive exploitation of the rubber stores with the help of Amazonia’s indigene peons until British expansion of the rubber biz in Southeast Asia fomented a global glut — and the rubber bubble popped. As economic diversity, i.e. native industry etc. accompanied by a local bourgeois had not been permitted to emerged during the rubber monoconomy, when the rubber biz went south, that was all she wrote. The rubber magnates’ capital lay no longer in the now-worthless rubber trees (which weren’t theirs to begin with), nor in the bodies of their now reduced-value debt-peons (which weren’t theirs either). The sole remaining capital ended up being peon debt the natives accrued via the purchase of imported and often unneeded products. A plutocrat could not legally “own” an Indian son but could own their debts, a remaining capital that was freely traded around, the debtor in tow. Any of this sounds familiar?
Remember the emergence of so-called New Economy, a term that rode in with Death Valley Ronnie (in a speech at Moscow State University)? In that dearly departed brave-new economic world, top-down policies shunted the tiresome chore of actually making whiz-bangs and doo-dads to the poor “gap-fillers” in “emerging” nations, that is previously non-industrialized, while in exchange for our major consuming nation, the “miracle” of the 80s and 90s economic growth came via merely peddling said doo-dads at the mall or pouring beers at the local TGIF. One hears a satisfying but incomplete fiction that off-shoring was due to liability associated with greedy civil lawyers, but the truth is more complicated (or simpler). The shift was due to the raison d’etre of the modern corporation, a thirst for profits gone off the end of the scale at the ultimate expense of the citizen/laborer. Consumption became a form of capital fed by a steady stream of mass media PR, convincing the public to exchange the hours of their lives for crap they didn’t need in the first place, much as in pre-rubber bubble Peru. The only way to measure this tinsel economy was by how quickly people’s formerly glossy crap ended up land-filled or stuffed into garages of movie-set super-sized McMansions, a predicable result of a political/economy shifting to one based on the profits made via consumption.
Ok, so where do we go? Don’t look for a return to the “good ole days,” i.e. a resurgence of the mortgage fueled credit card tar-pit. The failed model, built largely on an assumption that bad debt could be invested ad nauseum has been laid to rest along with a number of complicit agencies, the ones that could not be salvaged via the sort of state/corporate socialism glossed over by “free” (for them) market types and their sycophants in the major media. The basic fundamental cultural reality is the psychological trauma wrought by mass dispossession is too deep and wide for the average Joe and Jolene to be getting over anytime soon, the era of using one’s home to finance consumption gone down a suck-hole. A nation’s live work, its collective home equity scattered coast to coast across lawns for pennies on the dollar. Welcome to the yard-sale nation.
In Iquitos, Peru, the regional capital of the Departmento Loreto, the collapse of the extractive rubber economy fostered ultimately a modern healthier, more self-sufficient economy that while still with obvious inequalities and injustices, was more sustainable than the extractive rubber bubble. My friend and I were in agreement that we are poised to witness a return to an economic system more like what existed before off-shoring via two related statistics, the first, increasing global wages, the two-edged sword of global mercantilism. In order to attain the sorts of profits endemic to a growth-based system mercantile market the system has to eventually begin to pay their workers enough so that manufacturers and banks can reacquire the money spend on wages via products the workers themselves manufacture (remember Henry Ford). In the staggering globalized economy, the average salary for a Chinese industrial worker is now around $3.50 an hour. The other factor that has leveled the playing field is the ever-increasing cost of fuel needed to ship imports halfway around the planet. These factors (along with others) are making for a dramatically less-advantageous position for exporting nations, as well as the return of sailing ships, the development of football field-sized parachute sails for freighters.
The cost advantage of off-shore manufacturing and its gloomy accompaniment of imported toxic products is evaporating, ushering in a new era of local economies around the world. The man is out of the picture if you want it that way. But you will have to be prepared much more on your own, with the help of your neighbors.