The U.S. economy has run out of steam. Many Americans have concluded that the time has come for economic models based on never-ending growth to be replaced by an economy based on sustainability.
Although it’s easy to describe the promised land — a nation that spends within its means, does a better job of meeting human needs, protects the environment, provides adequate systems for mass transit, and eschews fossil fuels for renewable sources of energy — it’s hard to imagine a smooth transition between our existing “growth is good” economy and a sustainable future.
It may be useful to summarize how we arrived at our current crisis. Our nation’s trade balance has been out of whack for years. While many nations (especially China and Saudi Arabia) produce things we want, the U.S. hasn’t been very successful at convincing overseas customers to buy what we produce, so our exports have a much lower value than our imports. We’ve “handled” the problem by borrowing billions of dollars from the governments of China and Japan.
At the same time, the indebtedness of the average American family has been growing at a rapid clip, due in part to the easy availability of credit cards. More and more Americans have been acquiring things they haven’t paid for yet — things we hope to pay for with money we’ll earn next year.
During the housing bubble, many of us, encouraged by profit-hungry bankers, decided to take out a second mortgage and use the cash to buy even more stuff. These loans were a new twist on run-of-the-mill indebtedness: they were backed by fictitious collateral.
The strong growth rates experienced by the U.S. economy during the 1990s and early years of this century turned out to be an unsustainable smoke-and-mirrors game. To a large extent, we were spending money we hadn’t earned. Much of the apparent wealth generated during the 1990s — money that didn’t really exist — has simply evaporated. The rest of it is heavily concentrated in the pockets of the demographic group that benefits most from the existing economic system: the richest 1% of Americans.
Keynes to the Rescue?
So, what to we do now? The classic Keynesian solution to an economic slump is for the government to lower taxes while simultaneously borrowing and spending a huge sum of money (presumably, money borrowed from the Chinese). Even those of us who support President Obama’s stimulus bill can’t quite shake a nagging worry that the solution sounds like the classic hangover cure — a little hair of the dog that bit you.
One thing’s for sure: when our economy eventually gets back on its feet, it’s unlikely to resemble the U.S. economy of the 1990s. The ultimate cap on growth is the carrying capacity of the planet — an unknown value that we approach at our peril. Over the long term, it’s clearly unsustainable for every American manufacturer, retailer, and home builder to hope for continuing growth, year after year. At some point, any economy based on unending growth will hit a brick wall.
Fortunately, more and more Americans are making necessary mental adjustments as they envision a transition to a more frugal and responsible future — one in which houses and cars are smaller and vacations are fewer and closer to home.
It’s fair to say that the goal is desirable. But the transition is likely to be a very bumpy ride.