Monday, October 10, 2011
Living in the Past
It’s tempting to compare our current slump with the Great Depression, but it runs the risk of failing to see how the world has changed over the last 80 years. David Leonhardt of New York Times falls head over heels into this trap in his recent think piece on the upside of the Depression.
He makes a number of errors and omissions along the way (including a glaring ecological fallacy), but I’m not keeping score. It’s his big idea that is so fundamentally wrong.
Leonhardt correctly points out that the 1930s was a decade of extraordinary technical advance, laying the basis for new industries that would propel economic growth after WWII. He is also correct in seeing that the leading sectors of recent US expansion, health, finance and housing (read: suburbanization), are mostly bloat. What has changed utterly since the days of Sloan and Sarnoff, however, is the national character of technology: there is none.
It used to be that nations really possessed technologies. A corporation centered in a single country was the world leader not in a specific process or market niche, but an entire industry. A country that could establish dominance in a rising industry could significantly boost its prosperity and power, and, in one form or another, industrial policy was king.
That’s over. Engineering cultures around the world have largely converged, and progress is made via internationally coordinated partnerships. Technologies do not have locations. It doesn’t matter where the next new thing is originally developed; it will be financed, produced and marketed globally. It is anachronistic to expect some new, world-shaking product to pull the US out of its long-term rut.
Of course, it is profoundly self-destructive for this country to starve its schools, not to mention spending billions to warehouse a large chunk of what is clearly seen as a surplus population in our prison archipelago. Priorities certainly need to change, but the pathway out of the Depression is a poor guide.
Postscript: Maybe the next new thing (for the world economy) is cleaning up the mess left by some of the previous things, starting with decarbonization.
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3 comments:
"He is also correct in seeing that the leading sectors of recent US expansion, health, finance and housing (read: suburbanization), are mostly bloat."
Two out of three isn't bad, though we can quibble on how bad housing is, given that people have to live somewhere (and that mortgages are, essentially, forced-savings programmes for those who do not own other assets).
Health, otoh, remains essentially a Giffen good--greater and longer productivity, higher utility, pick-your-Wagstaff-reason. And the progress of the past few decades (from dying of diseases of the lung to dying of diseases of the heart to dying of diseases of the brain) bodes well.
We can agree that the cost-benefit of US health spending is out of line (to say the least). And we know better than to go all McArdle on the idea that it's (choose one, depending on time of day and phase of the moon) the ability to make excess profits in the US market or the recalcitrant US regulatory apparatus that fetters the glorious outsourcers at PFE or LLY from solving all the world's ills.
But health investment is fundamental in a civilized society, even if allocations are suboptimal. (Really, we paid Henry McKinnell how much to Just Go Away?)
16% of GDP could be a bargain; certainly, it's more an allocation issue than financial intermediation, and probably even housing.
Marriner Eccles described the causes of the Great Depression as an imbalance in income distribution. A focus on technology misses the point, if Eccles is correct. "It is anachronistic to expect some new, world-shaking product to pull the US out of its long-term rut." I agree. Leonhardt works for the great deniers, the people who publish the NYTimes. He is paid to mislead, sorry, that is harsh. I read recently Robert Wade in Challenge magazine, The Ongoing Costs of Global Inequality. I think he has it right, and soon a calibrated ratio of income and wealth distribution may be necessary to maintain growth. Or is it growth that we need, better to say, to maintain social civility. Wade: "Without reductions in income polarization, as well as stricter financial regulation . . . we can expect more multicountry crashes rotating from place to place around the world at a frequency of roughly one in five years."
Oil peak, the peaks of other raw materials, environmental degradation, global warming, and seven billion people all seem like areas where investments could be made; and many of these will produce jobs. We probably need to put many people back on land, because industrial agriculture is oil dependent and hell on the environment. We need to rebuild America's infrastructure and move to clean energy. We will probably have to dike New York. The entire ACE system controlling the Mississippi needs to be rethought and redone. A lot of this will require new technology. A lot of it will require structures in situ: a country with wind energy and solar power is going to be ahead economically. A country able to control flooding will be ahead. So will a country able to feed its people and maybe even export.
Getting back to the Great Depression, there was a lot of this kind of stuff then: the REA, the TVA, all those nice buildings in national and state parks.
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