I've been doing some thinking lately and it is leading me in a new direction on my thinkings about a fluid economy. We are in a recession. People can debate me about the technical meaning of the word recession, and those people can feel free to employ the term 'economic downturn' or 'slowing economy' - whatever; recession.
I had been of the opinion that 'economic downturns' were a fixture of a regular economy. That these things happen in pendulum swings of sorts, like the world economy breaths in and out and nations are just taken along for the ride. Breath in: growth and prosperity, breath out: recession and job loss. And that, to some degree, this was a good thing, as semantically everyone everywhere couldn't always be profitable.
But now, I feel I've been alive long enough, and have personally witnessed enough of these events that I think I can call that line of reasoning wrong. This change in thought comes at the heels of a LOT of thinking about sustainability. Every one of these economic downturn's in the U.S. has been caused in turn by a trail of overspending, poor accounting, and frankly bad common sense. That is to say, there is no chronological swing of the economy.
There are, natural economic events, that, I'll grant can cause micro-setbacks - as the recent events of the river have shown us; or rather our corn crop. But these events cause smaller ripples, and short of a long chain of natural disasters aren't going to provide the basis for a nationwide, or global economic downturn.
The difficulty lies in tracing any economic downturn to any single event and then quantifying a ruleset that is sustainable. Well, heck, what is a poor practice? I'm working my way towards a set of Sustainable Business Rules - which someday I may publish, but for the purposes of today's article, lets just look at some cases from this particular economic crunch. I like the fact that my blog has been online that I can point to some old articles where I spoke about these things as they were happening.
Freddie Mac and Fannie Mae just slid 18% on the market in a single day. Interestingly, recent accusations of cooking the books go back to 2004 http://www.workers.org/2005/us/housing-0505/ So, while it may seem like new knowledge now that the entire housing market was propped up on false data for an extended period of time, it wasn't. These early warnings were ignored or dismissed. Overstating profit of GSE's (government sponsored enterprises, or limited monopolies) seems to be a common factor in these things.
When Entire Stock Markets need to be bailed out by the Feds - Aug. 2007 - we should probably acknowledge that something went screwy and do something about it, instead of burying it in the news.
Congress allows National Debt to top 9 trillion (insert previous high water line here) for first time in history "The Senate voted Thursday to allow the national debt to swell to nearly $9 trillion, preventing a first-ever default on U.S. Treasury notes." in Mar.2006 - currently $9,506,133,823,396.86 - National debt in and of itself isn't a bad thing. Rising national debt out of proportion with revenue is.
I realize I most recently wrote this - about poor accouting in Iraq http://www.treslervania.com/node/427 , I had forgotten that I had also written this, long before the fact. http://www.treslervania.com/node/149 - "Funnelling Taxes Through Iraq" - the point isn't to say "I told you so" but that Government Accounting in general needs to be tighter on the Military Industrial Complex - particularly the contractors.
There are many more than that, but those are just grist for the mill. The larger point is that I think a periodic downturn, is really a periodic 'forgetting of the rules and why they are there.' Wealth - Disaster - Recovery - Caution - Laxness - Wealth cycle makes a pretty good sine wave, and it is easy enough to make Time the X axis, when perhaps "Recent Human Memory" would be a better X axis.
Of note, we also have tendency to refuse to look at the bigger picture, wanting to deal with specific issues. It is too big to think of changes in the housing market, student loan market, credit card market, national spending and taxation, hedgefunds, etc, but many of us feel we have a handle on any one or two of these. Too bad it is the big picture that matters.
Forever Blowing Bubbles
Hey man, if you haven't seen it, you may enjoy this Harper's article about the current bubble and the next to come. Some great illustrations.
There is this basic concept called "the business cycle" that says things are up and down and that's sort of life; while that's not really a hard law, it seems to be a pretty good rule of thumb. But the thing is that bubbles are so damned profitable -- like a modern-day gold-rush -- it's very hard for people not to try and play the game, and people who try and spoil the fun by pointing out some inconvenient truths are naturally sidelined until the shit hits the fan. This has been going on for about as long as finance has existed, I think.
The silver lining of this current turn of events is that it's falling mostly on the finance sector of the economy. Very bad for a lot of homeowners, and generally bad for everyone as the whole works gets dragged down, but the folk who are being truly ruined by this are mostly investors and investor-centric businesses. It's not like the mill shutting down when a hedge fund collapses.
Of course, the object result of all this bubblicious activity is mostly a lot of crappy exurban housing, speculatively built and increasingly retarded-looking in light of $5+ a gallon gas. Too bad we weren't building nicer things when the cash was free. The author of that article predicts the next big run will be around alternative energy and energy-efficiency, which at the very least would leave behind better infrastructure when it collapses.
That is so grim
I'm sure you didn't mean it that way, but that perhaps the most grim thing I've ever read. I mean in my brain I know that's how humans work, but I want to believe that in the cosmic tale of the Ant and the Grasshopper, that the Ant wins.
By this logic the Ant survives, the Grasshopper gets a silver parachute, at worst, and the real crowning heresy is that Next Season, the Ant falls for it all again.
Not so grim...
It's just cyclical is all. People get caught up in stuff. The real story isn't quite either way you describe it. There are real hardworking ants who get crushed (c.f. Flint Michigan), but plenty more who do actually pull through and avoid bad investments. There are plenty of grasshoppers who are ruined both financially and morally. Some even jump from skyscraper windows or fake their own deaths to escape.
There are also plenty of folks who just carry on being productive and are at best peripherially touched by the storm. For instance, unless things go seriously sideways, our little industry is pretty secure, and still relatively sane thanks to what happened before. I mean, I remember what it was like being in the middle of a bubble-bursting, and it must really suck to be employed in home construction right now...
But folks will bounce back.
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