All Better Now?
Sharon April 20th, 2009
The song being sung by the public faces of our economy is the old refrain - the one we heard in late fall, when stocks rallied “It is definitely better now, it wasn’t that bad anyway, and we’re sure this time is for real.” President Obama now does infomercials hawking great deals in refinancing and stocks, and the cheerleaders are telling us that fundamentally, we’ve turned the corner, happy days are, if not here again, coming soon, along with the new Green Economy.
In New York City for Passover, I could see on people’s faces how badly they want and need this to be true. Even though they’ve been burned and lied to before, even though the people telling the lies were the same ones telling the story now - it doesn’t really matter, because all their hopes of the long term future they’ve imagined for themselves, on the whole life they’ve conceived for themselves and for their children depend on these investments to fund their retirements, education plans, etc…. Or rather, it does matter that these people lied - no one expressed trust, or belief in anyone who was saying this. Instead, they expressed hope that this one time, the liars are right. And that’s something rather different.
James Howard Kunstler has written about the ways that the “psychology of previous investment” ties us into projects that are fundamentally doomed - and I think there’s no better place to see that operating than the stock market. Look around you - despite the fact that the stock market is (even with the rally) down 6000 points, give or take for today’s adjustment, over its peak, most people are holding their money in the markets. Even though many of them might get a greater rate of return, even with penalties, by taking the money out and paying off their mortgage, or using the money to invest in infrastructure that would lower their costs they don’t.
And they don’t because psychologically they can’t. We’ve been told that the market always, always goes up. And this is true - but up over what? It took nearly 30 years for markets to return to adjusted 1929 highs, and more than 20 to pass them absolutely. How many baby boomers can wait that long? How many people saving for college have 20 full years before their kids are freshmen? And yet, as I’ve pointed out before, there is no rational backup plan for the long term future of ordinary people but the stock market - our entire society’s long term sustenence is based on the stock market will always go up, and that everyone will always believe this, and thus ensure near-universal participation.
And it is the expansion of participation, more than anything else, that fueled the last few tenuous years of growth - fundamentally, the real estate bubble was, as we all know, created by our now deplored cheap and predatory lending. But what most people fail to think about is that the real estate bubble, and the larger growth that fueled it, *could only have happened* by pulling more and more people into the market, by convincing them they could have a house, and that real estate values would rise forever. That is, the very things we deplore about the market were necessary to keep the economy booming.
And this is true across the board - the other things that fueled growth, on a world scale, was the industrialization of agrarian people in the Global South - the moving of people off their land and into slum housing and factories in cities - the much vaunted process of “development” that people like Larry Summers and Thomas Friedman claimed would “lift all boats.”
But of course globalization’s root mechanism was cheap fossil fuels - and the process of industrialization of poorer nations inevitably results in a lot of new competitors for fossil fuel supplies. This drives up prices, creates exciting new bubbles for people who see something going up just as things begin to destabilize, creates a host of new “eaters” as food turns into fuel to meet growing demand, and, at least according to James Hamilton, crashes the global economy, not to mention pushing us very near to a climate tipping point. The very thing we most need to constrain, for a host of reasons - ie, rising use of fossil fuels - is precisely the thing needed to get us out of the hole.
Which leaves us with a big problem - in order to get economic growth going again, it will have to be based on something. If something could actually be done to lift us out of what seems to be an increasing spiral of deflation, and it is based on expanding Global South development, we will have deal with rising fossil fuel use there, rising climate damage and food insecurity, and rising food and fuel prices from increased demand - ie, precisely the things that drove us into our present crisis. The expansion of participation is itself the root cause of the boom and deep bust. And it is a boom and bust cycle of diminishing returns - we’ve all seen the figures that show that most ordinary people didn’t get much better off on anything but paper during the last period of growth - and while paper gains make us feel good, it is real gains that will be needed as the baby boomers hit retirement, and start drawing down those resources.
If a recovery were based on growth here in the US, the problem would be that because we have even fewer actual resources now than we used to, any expansion of the economy is going to depend on giving credit to people who can’t pay it back. For all the talk of increased regulation, in the end, if we’re to push an aging population who seems to be rediscovering thrift into spending like mad again, we’re going to do it by convincing them not to care about whether they can pay things back.
Either way, if it is possible if extremely unlikely to postulate that we will experience a recovery now (and I think most of the people doing so are simply trying to restore market confidence rather than describe a real and long term improvement), but even if we do, it isn’t going to be very long before we’re back in the same situation - worse, because climate change and fossil fuel depletion will have continued, while our population continues to age.
But what about Green Jobs and the new Renewable Energy Economy? Isn’t that going to give us a boom? Well, there are a couple of problems with this. First, as we’re seeing now, the renewable energy economy simply can’t be created purely with government spending - so the economy has to recover if we’re to get a really significant percentage of our energy, worldwide, from renewables. In order to do that, we probably have to go back to burning more fossil fuels - because investment capital and factories cost money. Some of that money could come from the US government - indeed, some of it probably will, and that’s all to the good. But there are so many other basic needs that at this point, much of what’s coming from the government is sliding back into coffers simply to keep things going - for example, California teachers want stimulus money to avert layoffs - but it can’t, because California needs the stimulus money to offset anticipated debts coming next year.
It is conceivable that we could enter into war economy model, where the one and only project the US engaged in was the creation of renewable energies and public service to that goal - conceivable, although not likely. But the Obama administration, despite its radical improvement on the subject of climate change over the Bush administration, simply hasn’t placed climate change or peak oil or any other justification at the center of its reasoning, so imagining that happening soon seems like a stretch. The justification for doing so would have to preceed the acts - and this seems unlikely. Moreover, the Obama administration has avoided any suggestions of using the troubled auto-industry as a means of manufacturing needed renewable enery or public transport equipment, as was done in WWII.
Without a war economy model, competing priorities are likely to prevent a government-created renewable economy. If renewables are to be created, they depend on growth - and it will be a long time before we start to see that growth offset by the renewables themselves either ecologically or economically. While renewables can and should be scaled up, doing so quite gradually seems more likely than rapidly, unfortunately - and the hope of the green economy is again, circular - it depends on growing everything else, including fossil fuel usage, including consumer spending, and the rest of the engines of the economy as a whole - but each of these things brings us back to the precipice of another collapse.
And that brings us back to ordinary people in the stock market, whether things are improving, and the psychology of previous investment. One of the reasons that the markets are doing as well as they are is that most people have simply not removed their retirement and college savings. Instead, they’ve adopted the “just don’t look” strategy. The question is how long they will go without looking. Certainly, as long as there are small rallies, and as long as they can be convinced to forget all the other times it looked like it was going to get better, sure. But how long is that. How long before the message, which some honest financial advisors already give - that you will get a better return from paying down debt, reducing heating and energy costs, or paying off mortgages and reducing expenses than from just keeping your money in the market? How long before they start to give up.
Because that’s when all hopes of rallying end - when ordinary investors finally give up on the hope that they will be able to retire early, spend their later years playing golf, and send their kids to college, and realize they have to find a new vision for the future. Will this come, sooner or later? I think so - because overall the American public has generally proved itself to take this present economic crisis *more* seriously, not less, than the average economist. Most of us knew we were in a recession even when the US government denied it. Americans radically cut consumer spending and rapidly upped their savings rate in response - these are huge behavioral changes, undertaken quite rapidly, even as the old song was playing “It isn’t a big deal, just go on buying.”
So the question becomes whether anyone listens to the new song. My own observation is that people are listening, at least a little - because no other vision of their future has been presented in the mainstream media (which so stigmatizes thrift as causing the problem and self-sufficiency as crazy survivalism), people still very much want and need things to get better, and are reasonably susceptible to the claim that it is happening. But I also think they will be enormously susceptible to a sense of monstrous betrayal, when, as seems very likely, it turns out that things aren’t better, that foreclosures and unemployment aren’t just lagging indicators, but fundamentally reshaping their landscape and their future.
I suspect that there are limits even to retirees praying for a boom, even for indulgent parents desperate to send tehir kids to college - there comes a time when the dreams of the future will change in the face of new realities. And then, the day comes when putting your money in the stock market doesn’t seem like such a good deal any more. And that’s the end of the game of endless market growth.
Sharon
. And this is a real danger - I’ve written more about our dogs recently, but my husband and I both have long histories with cats, and if it is possible, are even bigger cat devotees than dog. The very first act of my adult life, when living independently, was to get a pair of cats, and I simply can’t imagine living without them - a terrible fate that I’m clearly in no danger whatsoever of facing.