I was getting caught up on my favorite economic blogs and ran across a couple of posts that really got me questioning my assumptions about my worldview. It was triggered by reading this absolute nightmare of a post (which is amazing since it’s so curt and passive) that gave credence to some ideas that had been floating in my head. Briefly, everyone is worried about another Depression, where demand falls and creates a deflationary spiral, leading to wage decreases and mass layoffs. The government is trying everything it can to prevent this from happening, and we are truly in uncharted territory. It is commonly assumed that the consequences of their meddling will lead to an increase in inflation; perhaps greater inflation than we experienced in the 70s, but inflation is not unknown and theoretically fewer people would lose their jobs.
The primary argument against the Fed being able to inflate is that consumers have too much debt, and so banks won’t (shouldn’t even) lend. Since so much of our consumption was debt fueled, this suggests deflation is inevitable. Sure enough, the people that have made those predictions have seen every one come true thus far. The problem is that inflation should arise as a result of the government literally printing trillions of dollars, and the only question is timing. The last couple of weeks, as the dollar has started on its downward path once again and massive layoffs increase in number, I’ve been wondering if the conventional wisdom regarding inflation/deflation as opposites was correct. It seemed to me that it was possible the dollar could collapse along with domestic demand, which would lead to the worst aspects of both: wage/domestic good price decreases accompanied by a huge increase in anything related to imports.
It is not a stretch to say that if this happens, it will be far worse than the Great Depression. In the Depression people that managed to hold onto their jobs did OK, and for some middle class industries they even saw increases in living [Andy Rooney had interesting personal recollections about this that I remember watching a couple years ago]. However, if this scenario plays out, everyone will have a hard time making basic ends meet regardless of employment.
This got me to thinking about what such a scenario would look like. It’s not too much of a stretch to say that money would have relatively little meaning as most people wouldn’t have it, and even those that did couldn’t count on being able to use it to buy basic goods. More importantly, the government would be greatly constrained and couldn’t really issue much more debt. Alternative currencies might arise (like gold) but most likely, there would be a near complete collapse of trade and we would have to focus on domestic production of goods — without using much imported energy.
If you know much about the modern world, trying to do much of anything without oil sounds insane. However, in this reality we’d be forced to make do, and that means huge increases in manual labor, crop acreage and water consumption. Fortunately, we have large deposits of coal and natural gas, so heating and electrical needs would be met, and I believe we have enough domestic resources to restart many of our industries. Of course the industries would focus primarily on textiles and other basic goods rather than discretionary goods, but we would be in much better shape being cut off than a country like Japan. Scientific and technological development would become paramount, as creating better renewable energy and agricultural practices would be the key to rebirth. Of course non-industrial transportation would be nearly non-existent.
And the chance of war and domestic unrest would be very high.
In any case, I see the country as becoming fully mobilized to combat the challenges and while the mobilization would hopefully stay non-militaristic, there would be a huge loss of individuality and choice, rare. It made me sit back and realize how much of my world view is based on the idea that the choices I make are extremely influential on my present and future life, and how if things changed then my whole approach to life would as well. I think back to my understanding of WWII and how it seems that “life” became something that fell through the cracks, while “survival” and “duty” became the prime biological and social function. Romance, opportunity, success, failure, they become less a product of what you do and more a product of where and when you are.
I realize that for many people, this is already their daily reality. I feel blessed that I was born who I am and to whom I was. But that said, it is immensely disconcerting, and shakes me to my core. I have broached the topic with friends and family — not so explicitly, but just the tendrils of the realization — and find that they too are staring into the unknown. They say that the economic damage from these events doesn’t last long, maybe a decade or two at most, but the social and psychological effects last a lifetime. I hope this is all needless worry and am looking for my place to try and help as many as I can, but at the very least it makes me appreciate what I have today.
The scenario I described is extreme, but then again, some people are already basing marriage and companionship on finances. Today we are “catered,” “targeted,” “empowered,” and even “bombarded” based on our choices and self descriptions. Tomorrow, I’m not so sure.