Recovery?

Robert Reich has an interesting theory about this recession: it will not have a recovery. At least, that's the title, but he hedges by saying the economy will "change" at the end, which is a bit like saying that if I eat, food will not come out of my body. The commenters fall over themselves to congratulate the great insight, as though the guy just invented something called creative destruction or something. More evidence of general economic illiteracy, but I'm not going to complain about that here.

So how DO we come out of this? A few of the lackiest writers out there have been trying to compare this recession to the last one, but that is foolish. It is much closer to the last two big ones: 1980-83 (I'll count it as one despite some recovery between, because the second dip was deeper than the first) and the GD (ditto). There is no long wave issue here - the economy is a chaotic system, and at best any long-term rhythm is just a strange attractor. What is at issue is that the economy is phase shifting, always a dangerous and giddy time to say the least. Once FDR finally and thankfully got the fuck out of its way, the economy changed from agriculture-and-mass-production to the mega-industrial complex of the 50's and 60's. After this house came down through the 70's and early 80's, we got service and high-tech. Now? Here are some possibilities I can see:

1. The market does what socialists keep trying to get the government to do, and evens out income disparity. I'm not talking so much about disparity within the US. I am talking about first world vs. third world. Already China is bouncing a lot sooner out of its funk. It spent the last two decades running against time to build enough breathing room into its economy and those around it that it could take advantage of a time like this. India is in worse straits, but still better off than us and Europe. Face it. With globalization, we were never going to keep up 10-to-1 income disparities with our suppliers. We had a good ride while it lasted. The hope here is that living standards slow or stagnate, rather than falling off a cliff. Eventually, the majority of the world will be making $30,000 a year, and then (probably well before then) the manufacturing and industry jobs will come back. It's not a bad thing. I am willing to give up 1000 sq ft of house if it will raise 5 billion people out of subsistence. The innovative power alone of having all those people free from the plow and able to afford an education is enough to probably change the human race into something we can't imagine in a shockingly short time.

What can the US possibly offer during this period that might pay for the wait for everyone to catch up? In the business world, those who don't physically produce but still make a lot of money are either lawyers, financiers, or consultants. The first option seems to be cornered by Europe, who comes up with a new layer of bureaucracy and governance every other week. The second option seems to be the one we're pursuing, just because we were the first and most aggressive at opening up our financial markets, and because we, uh, print all the gold. But money is so fluid in the days of ubiquitous computing that we will be hard-pressed to maintain that middleman role much longer. The dollar is quickly becoming the world's largest toxic asset, and the US people will be the shareholders in the bank that is holding them. Also, we're bad at it.

I like the third option. We can become the Athens of the modern world. We are currently on a trajectory to absolutely roast this goose. Throwing government cash at more and more federal laboratories might make for interesting journal articles, but doing that will not make us money.it will make us the PhD students of the world: smart, sheltered, and... dirt poor. If we want to stay the world's foremost incubator of marketable ideas, we need to de-regulate venture capital markets, de-regulate and de-tax small businesses, and perhaps above all make immigration easier for smart people. The best idea I have heard is to automatically issue a green card to anyone with a bachelor's degree. I would extend this to anyone with a letter of admission to a US university (take away the slave labor and ridiculous restrictions, let them work like citizens), and anyone who has been granted a patent or anyone in an executive or board position at a profitable business. We need to be an idea factory, unless we are ready to compete on a wage basis with Sumatrans.

2. Jobs will come out of some emerging industry sector. This is arguably what happened in the last two decades with the information revolution. The US economy keeps pulling rabbits out of the hat. There is no reason it cannot do so again. Certain prognosticators like Aubrey de Grey and Ray Kurzweil believe that biotechnology - and I'm saying that broadly, to include things like human-AI interfaces and genetically engineered crops - is ready to be the Next Big Thing. I don't know how well it can penetrate the US medical-industrial complex, but it's possible. I won't try to prognosticate this. Even the very most optimistic investors in the thick of the recession in 1982 would not have expected a couple shares of Apple to fund his retirement. It didn't become apparent what was going on until the early '90s and the internet. As I heard Burt Rutan say once, we were buying computers for 20 years before we figured out what the damn things are for.

3. Inflate. This will kill the dollar standard, which on the whole would have to be seen as a good thing. Nations are just jockeying for who gets to tank the dollar at this point. We are way over-exposed by being the world's reserve currency. For all the power we think it gives us, we can bit back just as badly in monetary terms, and much worse in real terms because we have to use the stuff to buy food.

The problem becomes, if we inflate the dollar we risk destroying a lot of other economies who were foolish enough to invest in us on the downside. If you thought the '08 credit crisis was bad, imagine if it was nations going bankrupt. International trade would collapse, and it would be a miracle if a world war didn't ensue. This is if we totally devalue the stuff. If we balance our budget and slowly inflate over the course of ten years, then the world will do okay. The transfer to a free market of currencies will be a gradual, nation-by-nation affair. There will be some binational disputes over payments, but nothing will blow up. We will be poorer in real terms at the end. But it's a very tight rope to walk.

4. War. A world war. These tend not to solve things, but they do force reality on most of the big players. They destroy a huge amount of wealth, and knock the battlefield inhabitants back generations in terms of living standards. And this time there won't be an undamaged superpower like in 1945 to fund the whole cleanup. This would be a terrible thing in every way.