This time it’s different. People always say that, and they believe it – but most of the time it really isn’t different. Maybe things fell apart with that sweet young thing who was your sweetheart – and this time it’s different. There’s something really wrong here, with you, or with life in general, and you’ve had enough. You’re giving up on relationships. There will be no more of that nonsense. Doctor Johnson was right – for a man to marry a second time represents the triumph of hope over experience. Never gonna fall in love again… But somehow you know it will happen again – you’ll fall hard for someone else, who will be endlessly fascinating, until the fascination fades. John Barrymore did say that love is the delightful interval between meeting a beautiful girl and discovering that she looks like a haddock. And things fall apart all over again, until the next one comes along. It’s never different. Hope springs eternal, or delusion does.
Or maybe you lost your job, and somehow this time it’s different – you’ll never work again. You just know it. This is what the world has been trying to tell you all along – you’re stunningly and hopelessly useless. They’re finally onto you. You really cannot fake it any longer. The jig is up. And anyone who has lost a job knows how this feels – that this time it is different, and it’s you, it’s all you. And now true existential despair is appropriate. You end up reading a lot of Camus. But the Brits have another way to put it – they don’t say you were fired, they say you were made redundant. And that’s even worse, implying there are millions of folks just like you, all interchangeably unimportant, doing duplicate or triplicate work that doesn’t even need to be done, as it too is generally useless – so you were let go, but it’s nothing personal. You see, you’re not uniquely worthless. Most everyone is worthless, really. Does that make you feel better? Is universal existential despair better than mere individual despair? So you move on to Kierkegaard.
But you probably will work again. Or maybe you won’t. Maybe this time it is different, and it’s not you, it’s the new global economy, with all that can be done far more cheaply elsewhere, or the new service economy, where no one really makes things any longer. Or maybe what they used to say about automation and technology is finally coming true – in most industries there’s just not much need for whole lots of workers now. Machines can handle things, and the few folks needed to keep them up and running, and a small staff to count the money pouring in. Your car was built by robots of course, and maybe these first three paragraphs were written by a robot. Your only hope is to become a designer of machines that design machines that design machines. But there are few of those jobs. Maybe the world will one day be run by forty-three people.
But here we are in the new world that opened up to us in the last months of 2008 with the collapse of the economy, when the house of cards built on the slicing and dicing and reselling of hypothetical assets collapsed. You remember those massive bundles of absurd loans no one could ever really repay, or even intended to repay – those were the assets – and remember the complex default-swap insurance on those bundles of fictional goodies, insurance that had no underwriting whatsoever. Oops. Many a bank and many a nation, leveraged to the hilt, bet the bank or bet the nation on that going well – or thought they could get out at some point, selling this crap to some other sucker, or bought the completely useless default-swap insurance. That didn’t go well. An emergency infusion of seven hundred billion dollars kept the banking system up and running, and the world’s economy didn’t stop cold and die on the spot – but that was about it. More than two years later there’s been little recovery. Unemployment is still above nine percent, or if you count in those who just gave up looking for work, double that. Wages are stagnant. There’s a lot of despair going around, even if corporations and banks are showing massive record profits, and sitting on trillions in idle cash they see no need to deploy in any way.
And there is talk that this is the new normal. Those corporations and banks don’t need you working and spending money and paying taxes and being all middle-class happy to do well. Consider this hypothetical business model – you’re an American company, you have a French team design a snazzy new product, and have a German team prototype and test it, then you have it built in Malaysia at super-low cost, and sell a million units a month in China and Brazil – and you make a ton of money you can spend at home in Peoria. It might be nice to sell something to American consumers, but they are hardly necessary. And they’re tapped out – deep in debt or underwater on the mortgages – buying the few meager things they need at Wal-Mart, the shoddy stuff made in China or whatever – tube socks or t-shirts – which they charge on plastic, hoping one day they’ll pay down the card, but knowing they really won’t. You really don’t need these folks. Others will buy your snazzy product.
Last year it was Robert Frank in the Wall Street Journal:
Late last year, the U.S. economy experienced a surprising decoupling. As stocks boomed, the wealthy bounced back. And while the Main Street economy was wracked by high unemployment and the real-estate crash, the wealthy – whose financial fates were more tied to capital markets than jobs and houses – picked themselves up, brushed themselves off and started buying luxury goods again.
Who knows what the next few months and years will bring. But one thing seems clear: the economic fate of Richistan seems increasingly separate from the fate of the U.S.
It seems that “the wealthy increasingly earn their fortunes with overseas labor, selling to overseas consumers and managing financial transactions that have little to do with the rest of the U.S.” And Frank cites Michael Lind – “A member of the elite can make money from factories in China that sell to consumers in India, while relying entirely or almost entirely on immigrant servants at one of several homes around the country.”
And the Michael Lind analysis is quite creepy:
Have the American people outlived their usefulness to the rich minority in the United States? A number of trends suggest that the answer may be yes.
In every industrial democracy since the end of World War II, there has been a social contract between the few and the many. In return for receiving a disproportionate amount of the gains from economic growth in a capitalist economy, the rich paid a disproportionate percentage of the taxes needed for public goods and a safety net for the majority.
In North America and Europe, the economic elite agreed to this bargain because they needed ordinary people as consumers and soldiers. Without mass consumption, the factories in which the rich invested would grind to a halt. Without universal conscription in the world wars, and selective conscription during the Cold War, the U.S. and its allies might have failed to defeat totalitarian empires that would have created a world order hostile to a market economy.
But times have changed:
Globalization has eliminated the first reason for the rich to continue supporting this bargain at the nation-state level, while the privatization of the military threatens the other rationale.
The off-shoring of industrial production means that many American investors and corporate managers no longer need an American workforce in order to prosper. They can enjoy their stream of profits from factories in China while shutting down factories in the U.S. And if Chinese workers have the impertinence to demand higher wages, American corporations can find low-wage labor in other countries.
This marks a historic change in the relationship between capital and labor in the U.S. The robber barons of the late 19th century generally lived near the American working class and could be threatened by strikes and frightened by the prospect of revolution. But rioting Chinese workers are not going to burn down New York City or march on the Hamptons.
And there is this gem:
If much of America’s investor class no longer needs Americans either as workers or consumers, elite Americans might still depend on ordinary Americans to protect them, by serving in the military or police forces. Increasingly, however, America’s professional army is being supplemented by contractors – that is, mercenaries. And the elite press periodically publishes proposals to sell citizenship to foreigners who serve as soldiers in an American Foreign Legion. It is probably only a matter of time before some earnest pundit proposes to replace American police officers with foreign guest-worker mercenaries as well.
If the American rich increasingly do not depend for their wealth on American workers and American consumers or for their safety on American soldiers or police officers, then it is hardly surprising that so many of them should be so hostile to paying taxes to support the infrastructure and the social programs that help the majority of the American people. The rich don’t need the rest anymore.
That was from July 2007, and one year later, the New York Times’ David Leonhardt explains the roots of our failed economic recovery at this point – “We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making.”
And Kevin Drum reacts:
True enough. And in the short term, debt overhang and unemployment explain perfectly well why Wal-Mart is increasingly noticing that its customers are running out of money at the end of each month. But I think Leonhardt skates over our real dilemma too hastily when he tries to turn this into a broader lesson about the economy…
In past years, many of those customers could have relied on debt, often a home-equity line of credit or a credit card, to tide them over. Debt soared in the late 1980s, 1990s and the last decade, which allowed spending to grow faster than incomes and helped cushion every recession in that period. …
The notion that the United States needs to begin moving away from its consumer economy – toward more of an investment and production economy, with rising exports, expanding factories and more good-paying service jobs – has become so commonplace that it’s practically a cliché. It’s also true. And the consumer bust shows why. The old consumer economy is gone, and it’s not coming back.…
The biggest flaw with the past stimulus was that it imagined that the old consumer economy might return…
And Drum disagrees:
I know this is too simplistic to be taken seriously, but here’s my version of what happened over the past few decades: 1) The economy grew just fine, but rich people got most of the money. 2) They couldn’t spend it all, and investment opportunities were limited, so they ended up loaning it out to the middle class in increasingly baroque ways. 3) That worked fine until it didn’t.
This problem metastasized during the aughts and ended in the Great Collapse of 2008. And I don’t know how to fix it. But Leonhardt is too quick to dismiss the “old consumer economy.” Modern mixed economies fundamentally depend on consumer spending growing over time, and that only happens if middle-class incomes are also growing over time. If we don’t figure out a way to make that happen again, it’s hard to see anything we do today producing durable economic growth in the future.
But there are two basic contentions rumbling around here. The rich don’t need the rest of us anymore. The old consumer economy is gone, and it’s not coming back. Drum does point out that the economist Jared Bernstein has the numbers here – we are still a consumer economy. But there is something in the air, and Leonhardt does capture the sense of things:
If you’re looking for one overarching explanation for the still-terrible job market, it is this great consumer bust. Business executives are only rational to hold back on hiring if they do not know when their customers will fully return. Consumers, for their part, are coping with a sharp loss of wealth and an uncertain future (and many have discovered that they don’t need to buy a new car or stove every few years)…
Consumer spending will not soon return to the growth rates of the 1980s and ’90s. They depended on income people didn’t have. The choice, then, is between starting to make the transition to a different economy and enduring years of stop-and-start economic malaise.
But the odd thing is that now many Republicans think this is the way things are supposed to be:
The easy thing now might be to proclaim that debt is evil and ask everyone – consumers, the federal government, state governments – to get thrifty. … If governments stop spending at the same time that consumers do, the economy can enter a vicious cycle, as it did in Hoover’s day.
Andrew Mellon, Hoover’s Treasury secretary, argued for belt tightening across the board, as the Tea Party crowd does now. Tying the hands of government during a recession is an odd idea, but it is easy to argue for that. With so many out of work there’s not much tax money coming in, so what else can we do? It makes superficial sense to break the cycle of borrowing and debt, if you don’t think about history, and thus we get the refusal of Republicans to raise the debt ceiling:
The prospect of that cycle is one reason an impasse on the debt ceiling, and a government default, could do so much damage. Global investors may be the only major constituency that has been feeling sanguine about the American economy. If Washington unnerves them, and sends interest rates rising, the effect really could be calamitous.
We’d be in Hoover Land, although there are alternatives:
The debt-ceiling debate doesn’t have to be yet another problem for the economy. The right kind of agreement could help soften the consumer bust and also speed the transition to a different kind of economy. What might that agreement look like? First, it could reduce deficits in future years, to keep investors confident that Washington too could begin living within its means after years of excess. Second, a deal could avoid the Mellon-like problem of having government cut back at the same time as consumers. …
A budget deal could increase funding for medical research and clean energy by even more than President Obama has suggested. These are the kinds of investments that have brought huge returns in the past – think of the Internet, a Defense Department creation – and whose price tags are tiny compared to, say, Medicare or the Bush tax cuts.
But he knows he’s dreaming:
Politics, of course, makes many of these ideas unlikely to happen anytime soon. Unfortunately, though, these debt-ceiling talks won’t be the final chance for Washington to help the country recover from the great consumer bust. That’s the thing about consumer busts. They last for a very long time.
And Joe Klein comments:
David Leonhardt does his usual excellent job explaining why the economy is lagging: People are still more concerned about working down their debts than in buying new things (and running up new debts). As candidate Barack Obama told me in October, 2008, “The easy credit economy is over and we have to find what’s going to drive the economy in the future.” This idea isn’t new. …
But it is good, every so often, to do what Leonhardt does on a regular basis – cut through the vast amounts of politics and theoretical gas surrounding our current economic woes and remind ourselves about the heart of the matter. The recovery is going to take time.
But that is not what Leonhardt is saying. This time it is different. The rich don’t need the rest of us anymore. The old consumer economy is gone, and it’s not coming back. And add Obama’s comment. The easy credit economy is over and we have to find what’s going to drive the economy in the future. And we certainly haven’t found that yet.
And what if there is nothing to find? What is the message for the American middle class? This is what the world has been trying to tell you all along – you’re stunningly and hopelessly useless. They’re finally onto you. You really cannot fake it any longer. You’ve been made redundant.
That’s different this time.