Some Harsh Economic Lessons
When settlers first came to the colonies of North America in the 16th and 17th centuries they were amazed by the tremendous natural resources and the rich soil that seemed to make everything grow. Unfortunately they took it for granted that these bounties would last forever.
Southern farmers in particular adopted a very bad policy of using up the land until it was barren and then simply moving on to new property where they started the process again. The problem was that eventually they were going to run out of land and the system would collapse.
We seem to have made a similar mistake in 20th century economics. For decades we’ve fueled economic growth, both personal and business, on debt and confidence in future growth. While this is helpful in the short term you can’t count on it lasting forever. Just as the rich farmland did not last forever neither did the economic riches.
The housing industry in particular was hurt by this process as buyers dumped trillions into real estate depending on the fact that the value of the property would grow. When it did not the housing bubble burst and we got the collapse in the mortgage industry.
The same thing has happened in most other industries (stock markets come to mind) but in this case there was so much money involved that it helped send us to the current mess. While certainly there are other causes of the crisis (ranging from corporate greed to inadequate regulation and beyond) the basic problem stems from the consumer presuming that the ride will never end.
In a report issued this week the World Bank is predicting that things will get worse before they get better. They seem to expect that while 2009 will see continued slumps that 2010 will be a time of recovery. Obviously we all hope that the recovery does come in 2010 but I am not sure that it will.
My concern is that we have a couple more shoes to drop in the economic downturn. The first is the increasingly likely collapse in the commercial real estate market, which is brought on by the failure of a number of major renters in shopping malls and a slowdown in construction.
I also think we could see a blowup in the credit card industry as more and more people declare bankruptcy, and this could hurt banks in their efforts to climb out of the mortgage mess.
It is unfortunate that we are seeing so many of these problems at once but as many economic experts have pointed out these problems have been developing for several decades and each was just waiting for one more little push to shove them over the edge.
One Response to “Some Harsh Economic Lessons”
Your writeup seems disjunct and in fact jumbled, but it's interesting. I agree there's more to come. Note that we risk compounding things and seeing far worse happen to us because many in Washington wish to increase interventionism in various and sinister ways by the federal government and this only makes the current situation even worse.
Note that the demographics (specifically, the aging of the Baby Boomers) point not only to future failure of Social Security and Medicare (to date no serious reform, long overdue, has been attempted for these; so many less intelligent people in this country remain in denial that they are unsustainable in their current forms), but to a large-scale asset sell-off and long-term broad bear market in future decades as people sell assets to finance their retirements.
There is no “population explosion” as the 1960s-onward hystericist little left-totalitarian-wannabees have often claimed, but in fact a remarkable reduction in fertility since the early 1960s all over the world (there are very few places where fertility remains high). In this sense there is a “population aging” or “global aging” (or “ageing” if you look up documents with the British spelling, such as at the United Nations) and aging in the developed nations will constrain economic growth (and compound the problems with retirement-related social-spending and -service programs there). The USA is in better shape (with higher fertility and population growth, albeit still modest) than Europe, at least. (Hopefully it won't be made as bad as Europe, as it could be if the childish little leftists who want democratic socialism for the USA just as in Europe have their way, as they are becoming able and even encouraged to do in Washington currently.)
Growth, and large growth, is not inevitable. The automobile market (currently hurting like others) in the USA, for example, has long been considered stable or “mature” (everyone who can drive pretty much has a vehicle to drive nowadays, for example).
Also, the intriguing example of fertility loss from agriculture (reminding me of many different subjects or issues) has other counterparts, including one involving arguably “too much growth.” Namely, there is the example about how people can wreck something (and yes, the lefties sounding the alarm about this were in fact proven correct, after all) of fisheries depletion, such as off the Canadian coast. Just ask all the fishermen in Newfoundland who are out of work. (The same is actually true in a way about man's increase in atmospheric carbon dioxide and eventual climate change, but the lefties have ruined this issue with their misbehavior and their misunderstanding when not being dishonest as well as insincere and immature — not one in ten thousand of those pathetic people actually understand the issue clearly and correctly.)