An Alternate Theory about the Root Cause of the Current Economic Crisis

[Joanne98]

Martin Ford offers further thoughts on where we are headed.

An Alternate Theory about the Root Cause of the Current Economic Crisis

Bernanke's speech in Atlanta a month ago focused a lot of attention on the debate about the forces that led to the current crisis. Was it primarily Greenspan's low interest rates, or as Bernanke suggested, was a lack of regulation and oversight a more important issue? Nearly everyone seems to agree that the crisis was brought on by some combination of these factors. In other words, the current situation is viewed almost entirely in financial terms.

While there is no doubt that the financial meltdown was the proximate cause of the current recession, is it possible that a more fundamental cause exists? What if the housing bubble and the financial crisis were merely symptoms of something even bigger---perhaps of a structural shift occurring in the broader economy?

I've argued here previously that advancing automation technology is likely to result in structural unemployment in the future. In fact, I think this is a trend that is already well underway. The last decade has been characterized by substantial advances in information technology and fairly dramatic increases in productivity. Average workers have seen stagnant or even decreasing real wages, while health care costs have been exploding. Until the onset of the current crisis, official unemployment numbers were low, but those statistics fail to capture underemployment, such as workers who are forced to work multiple part time jobs with no access to benefits.

Globalization, of course, gets much of the blame for the plight of average workers, but the reality is that advancing technology has a larger impact. Jobs are not just moving to China---they are being automated away completely. This is happening not just in the United States but in low wage countries as well.. And it isn't just in manufacturing; as I've pointed out here previously, service sector and knowledge worker jobs are increasingly subject to automation as well.

As the dual forces of technology and globalization progressed over the past decade, I suspect it became pretty clear to most average workers that holding a job at the prevailing wage offered little hope for getting ahead. Recognition of that reality certainly played an important role in the politics that led to the creation of subprime lending programs. You can make a pretty strong case that the housing bubble was caused not simply by low interest rates but by widespread recognition that investing in a home represented perhaps the only viable hope for a typical American family to achieve any measure of prosperity.

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http://angrybear.blogspot.com/2010/01/alternate-theory-about-root-cause-of.html#more

[DCBob]

1. There are whole bunch of bigger underlying issues...

-- globalization
-- peak oil
-- strain on natural resources
-- over population
-- aging population
-- massive debt

Our economy has been over-performing for decades due to various economic bubbles that were not realistic. We were due for a correction with probably more to come. I doubt we will ever return to the "high-flying" days of the Bush era. That was a bogus economy based on bogus wealth. Our standard of living is going down and I am not sure there is much we can do about it. IMHO.

[Warpy]

2. He's right, it's a wage crisis more than anything else,

but deregulation and Greenspan's idiotic policies combined with that to make it a perfect storm. We might have escaped another depression, although that is not assured. Our deep recession will be prolonged and painful as long as the banks are unregulated, wages are declining, companies are paid to throw us out of work in favor of Indians and Chinese, and our manufacturing base is largely gone.

The American worker is on the edge of despair. No economy can thrive with that kind of condition.

[Demeter]

3. We Want (and Need) It All

We need the regulation, the frauds and banksters locked away (at least from the economy), the nation's budget operating in a sane fashion to promote the general welfare, and not General Warfare. We need the interest/lending equation to balance onec again, so that there's a reason to save one's money in a bank certificate, instead of gambling it away in the market before inflation eats it up in a fruitless attempt to provide for the future.

We need to build not a safety net, but a real society that includes all in the rewards as well as the work.

We need to start acting functional. Is that too much to ask? We need to punish GREED, and make it less fashionable than a mullet.

[Turbineguy]

4. There was some good to this idea

Jobs that were boring and dangerous could be done by machines. But that's only half of the equation. With essentially the last 30 years in a Republican Paradise where you can ignore costs you don't like, it has gone pretty much in the direction of automation only.

I remember going to Singapore in the days when they had rickshaws. You know, you sit comfortably while some leathery looking soul runs his heart out pulling you along. I found such work degrading for a human being. Eventually they were replaced by air-conditioned taxis. But the old guys who made a living pulling the rickshaws did not become taxi drivers. What happened to these people? Who knows?

At some point society has to bear the costs of displacing people are made redundant. That does not mean a welfare check for the rest of their lives but it does mean they need an alternative.

The idea of automation is to free us up to do better things. Not to send us out to freeway off-ramps with a cardboard "Please Help, God Bless" sign.

[Trillo]

8. The flow of money is screwed up.

It's being passed from the top of the money pyramid, to others at the top of sub-pyramids.

Nations seem to reserve for themselves the power to control the currency, today done through central banks. When the entities at the top are passing money to the tops of other sub-pyramids, the idea of automation freeing most of us is little more than a lie. Trickle down doesn't seem to work.

Perhaps money creation needs to occur at the level of each individual, since the current systems are designed to take some money cut, transferring that cut upward, at nearly every transaction. I have little faith that individual money creation would even be considered a serious idea, but the poorest are not in the flow of money. Crumbs, if that, is are all they temporarily hold.

Under our current system, without changing where money creation occurs (now at central banks), then a welfare check to individuals may be the only realizable option.

What other "alternatives" are there?

[Nay]

5. The sad thing is, there's plenty of desperately needed work to be done,

but no one wants to pay to have it done. From bridges and streets to green housing to food growing to child adoption to correcting the state of the Indian reservations. Plenty of work, no money to pay for it.

We've got plenty to go to war, however.

[HCE SuiGeneris]

9. Agreed, there is much real work that is needed in all of those areas.

It is incredibly frustrating... the limited vision and funds is killing us.

[fasttense]

6. I don't buy it.

First technological improvements have been happening through out history. They are constantly being implemented. Why would all of this technology suddenly cause everything to crash at once?

Has he visited a Chinese factory or South American sweat shop lately? There is no technology. Chinese products are of poor quality because they don't have the technology to make the product to uniform specifications. Just ask a manager of a Chinese factory what their reject rate is. It runs into 50%. That's because so much of the precision work is done by hand, because labor is so cheap.

When labor is so cheap, there is no need for implementation of labor saving device. Labor saving device in large manufacturing are only implemented when labor becomes expensive. It is very cheap to pay impoverished people impoverished wages and then sell their handiwork in larger, richer markets.

Did you ever wonder why women's clothes button backward? It's because when tailors were making most of the women's clothes, the women all had maids to help them dress, even the middle class. So, the buttons were put on to suit the servant. As labor became expensive, clothes began to change so that women could dress themselves.

[starroute]

7. The time is passed when the economy could be based on making things

Once upon a time, all humans spent their time hunting and gathering. Then the great majority spent their time farming, with a tiny minority of nobles and priests, merchants and artisans being freed up to specialize in social organization and commerce.

But in the 18th century there was the start of a great revolution, whereby new farming methods meant that it took a lot fewer people to raise sufficient food for everybody else. This could have provoked an immediate crisis -- except that the industrial revolution led to the rise of factories that absorbed all the peasants who were being thrown off the land. So for the last 200 years, instead of most people raising food, most people have been occupied in making stuff and selling it to one another.

But that's only a stopgap. Even at its peak, capitalism had periodic crises of overproduction -- which led to recurring economic depressions. Making stuff also depletes resources and degrades the environment in a way that growing food does not. And with automation, the number of people needed to make stuff at a sustainable level is far smaller than the overall population.

What's worse is that our entire economic system is based around "jobs." People work to make stuff so they can get money to buy stuff. Without a job you have no medical care. Without a job, you may not even have a home. Without a job, you have problems feeding your family. And our entire culture is built around the idea that without a job you are a useless parasite with no reason for even being alive.

So it's not simply a matter of finding new jobs for people doing something that we can't yet imaging. It's going to require reorienting our entire way of thinking away from "jobs" and "employment" and "income" and towards a completely new understanding of how to structure the human enterprise when the roles we have taken for granted no longer exist.

[lildreamer316]

10. THANK you! I was looking

for a clear way to say exactly that.

Upthread; someone was metioning that we may have to have 'welfare' checks for everyone (or a majority of people). The word 'welfare', in the US, is almost synonomous with 'lazy, non-motivated persons'. What really needs to be considered is if we can move into either a model where people are ok with the fact that they don't have a 'job'; but find a way to serve and help others; or a model where money as we know it is not even used anymore,or is conceptualized differently.

We truly are on the edge of a new age.

[Festivito]

11. How about 5 banks created more money than the Fed creates.

Called it CDSwaps and sold it and hold it until they can cash in when they want for whatever reason they want.

For example, they can buy news-space to sell smoke-screen articles.

[Phoebe Loosinhouse]

12. The root cause is : Wages did not keep up with inflation

Some wages did - that of executives and CEOs and the upper tier, who financed their own inflated wages, bonuses, etc. by cannibalizing their shareholders and employees, who allowed themselves to be cannibalized without a whimper.

If you cannot earn a decent living just "working" than the common man will do what those above him also do - speculate. The speculation of the common man on real estate "investing" was simply to offset the growth and opportunity that was no longer offered in plain old vanilla jobs, as had been the case for decades.

And it wasn't just real estate - the common man speculated at Ebay, which helped set up and facilitate a whole new underground economy that was also a natural growth to fill in the gaps and the void that old world jobs which didn't pay enough left.

Now Ebay is pretty dead since no one has enough extra income to collect or speculate anymore and the jobs are gone. Will we sell apples to each other on the street corner? When do we start paddling out to meet cruise boats to offer our colorful handmade crafts?