April 02, 2008

American Economy at the Crossroads

There was one arresting moment at the conclusion of Ben Bernanke's testimony today before a joint Congressional economic committee where he was asked to comment on Senator Charles Schumer's non-question about the state of the U.S. economy. Schumer likened the USA to a giant which had become "overweight," now importing more than it exports and spending more than it saves. In Schumer's view, it could not be predicted that the latest financial crisis in the country would arise from "mortgages," but that such an underlying, unhealthy situation would eventually produce big problems of some kind was inevitable. Bernanke simply said that he agreed with the points Schumer was making.

Schumer's question was a kind of "aha!" moment for me; it was clear that the garrulous, collegial senator from Brooklyn was another card-carrying member of the "Big Picture" club. When you think about it, what was the point of Schumer's "question?" Did he think Bernanke could shake out of his sleeve, or pull from the recesses of his heavy beard, some nostrum that would reverse economic trends which have been underway in the U.S. for decades? Yet everything before that question had concerned the short term. Bernanke gamely predicted that prosperity was just around the corner; we might have to weather a technical recession for this first part of the year, but after Bush's Bribes were issued starting next month, America would go on another mindless shopping spree for imported goods which would get the economy humming again.

There is an inherent contradiction between these two visions of the future. If the economy "recovers" along the lines Bernanke predicts, then it will simply worsen the situation which Schumer described.

Roger Cohen's column about Asia in Monday's New York Times described the "end of the white man" as the world economic leader. He was in Hong Kong when he wrote his column, apparently, and under the influence of the usual hysteria which sets in while you're traveling, he talked about the astonishing growth rates of the Chinese and Indian economies. The Asians now speak of "decoupling" their economies from the West and developing their own domestic markets to replace the fading American and European powerhouses. Cohen talked about all the high speed rail being built, the feverish construction of commercial buildings, and sadly lamented that America's day (and the day of the dominant Caucasian) had come and gone.

I suppose that one problem America has is in coming up with a new identity for itself. We can't compete with these giant Asian economies, of course, nor should we have the slightest desire to do so. They work for tiny wages in anthill societies using ruinous amounts of carbon-based fuels and depleting their water supplies at a completely unsustainable rate. The entire world is in a state of 40% overshoot of natural resources, and China and India will soon displace America as the greatest wastrel nations on Earth.

Long, long ago (like 30 years ago), homegrown environmentalists and deep ecologists like Barry Commoner and Wendell Berry and other writers described the need for a "zero-growth" economy. For a "steady state." For a sustainable economy based upon natural replenishment rates of renewable energy. Instead of moving coherently in this direction, of course, the U.S. went on a growth binge, moving recklessly toward the condition which Schumer briefly described in his closing remarks. The game actually petered out about a decade ago. I at last found some corroboration among Big Shot pundits a few days back for one of my pet theories, that there has been no increase in the Dow Jones for about ten years, in a column written by Kevin Phillips, author of American Theocracy (which despite its title is really about the American economy). Phillips went me one better, noting:

"In fact, phony Washington statistics and warped market measurements make it doubly hard to tell. The federal Consumer Price Index is already regarded by many Americans as a con job, and the press periodically quotes investors who state their belief that current U.S. inflation is really 6 to 9 percent a year, not the 2-4 percent the government alleges. I agree. On top of which, because the value of the dollar has dropped so far, the Dow Jones Industrial Average at the end of March was not really 12,200, a number barely up from its 11,700 peak in 2000. If you measure the Dow in Swiss francs or euros, two strong currencies, it has already lost some forty percent of its 2000 value. Too many Americans live in a dream-world of economic misinformation."

People who make money in the present American stock market, by and large, do it by playing Wall Street like a casino: shorting the market, hedge funds, betting against the dollar, buying gold, and so forth. Not by buying equities and waiting for sustained growth. Sadly, America's transition to a sustainable economy, if it ever happens, will not occur through orderly processes. That ain't the way humans do stuff. It will be a train wreck, and the economy will be put together again out of parts scavenged from the still smoking machinery. And even as the American economic locomotive approaches the point of lift-off, Congress folks like Chuck Schumer will still be posing those Big Questions for their own amusement and self-aggrandizement.

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