For your weekend consideration.
Paul Krugman has put up a nice set of Saturday blog posts. One of them is about the IMF world fiscal report, Navigating the Fiscal Challenges Ahead (pdf). Krugman makes all the major points, and asks the right question:
[W]hat the report says is that there has been a fundamental deterioration in the fiscal outlook for advanced countries. Not only are they running up a lot of debt in the crisis, but — and much more important — they will emerge from the crisis with large structural deficits that weren’t there before. So spending cuts and tax increases loom.This turns into a discussion of the (Pete Peterson–funded) deficit freaks, how they will read the report, and why that reading is wrong. But buried in Krugman's post is this remark, which I'd like to focus on:
But here’s the question: where are those structural deficits coming from?
[W]hat the report actually says is quite different: it says that the financial crisis has made us permanently poorer, which among other things reduces revenue, and governments have to tighten their belts to make up for that loss.I think it's really important that, as a nation and as individuals, we wrap our agile minds around that concept: The financial crisis has made us permanently poorer. (Of course, "permanent" is a relative term; in my agile mind, anything that lasts ten years is permanent.)
This may not be all bad. Three quick points:
- The nation has been here before, most recently in the 1970s. The high-water mark of real post-war wealth was roughly 1958–1972. Jobs were plentiful, wages were strong, and wage growth was strong. Ordinary people not only felt prosperous, they were prosperous.
Then came 1973, the Great Oil Crisis, and all that changed. The newly formed OPEC cartel sent energy prices soaring, Americans waited in long lines for gas, new cars were sold with locks on gas caps, and our thinking suffered a sea change.
We hunkered down and waited. It was ten years before the country even started to climb out.
- Americans are now larded up with debt. In 1982, profits came back, but wages stayed permanently depressed. People felt "prosperous," but only because the Dow was up and the rich were crowing about it. How could the rest of us participate?
At first, the "prosperity" of ordinary people was wife-driven. Second incomes were both necessary (thanks to St. Ron) and possible (thanks to dreaded bra-burners and women's lib types). You couldn't take part in the Gordon Gekko "boom" without a second income.
When that source petered out (when all the women who wanted jobs had gotten them), our "prosperity" became debt-driven. That period lasted until, oh, yesterday (ok, 2008). By my count, that's 20-plus years of debt intake. Clearing that debt is a job that has to be done. Starting now is a very good thing.
How long will it take to clear 20 years of debt? If it "only" takes ten years, we'll have gotten off lightly — and it will feel like forever.
- Times when people don't chase wealth can be really good times. We don't always have to ride the big waves; the quiet troughs can be nice. Besides, when the waves are too high, most of us crash anyway.
And we might as well face it — the real boom, the big Post-War Boom, is never coming back. Never. We spent that money in the 80s, it went to the rich, and it's gone for good. The Reagan "boom" was a dream — a wet dream for some, and a nightmare of chasing for others. There was no real money there for us, just a vision of money, just out of reach. Nothing Clinton did corrected that damage; and then came Bush.
We've spent the last 20 years chasing an out-of-reach blonde (or blond), who frankly would never be ours. Won't it feel good to stop?
I do think we need to adjust to life ahead of us. It's the end of an era; things will be vastly different; America's place in the world will permanently change. But there's no reason not to enjoy it for the gift it is.
Weekend thought — here's to enjoying it!
GP
