The Reformatting

Robert Reich, the Clinton era Labor Secretary, offers a wise view of the outcome of our current economic turmoil. In ‘When Will The Recovery Begin? Never‘, Reich outlines his view that the next phase will not be a traditional ‘recovery’. Rather, since we’re starting over, Reich sees the next wave of economic behavior as unpredictable and unrelated to past events. It’s a simple, well written piece that merits your attention

The underlying idea makes a lot of sense. Reich argues that the “shape” of the response to last fall’s meltdown has more to do with the availability of consumer capital. With massive disruption in housing process and intense fear of joblessness, there is simply no money with which to buy a recovery. Reich’s belief  splitter is that the ‘new normal’ involves slow building and a focus on thrift.

He doesn’t quite say that the idea of a ‘V’ (bounce as fast and high as we fell) or a ‘U’ (wait awhile and then bounce back) have a super ball quality. We’ve bounced better than we fell a couple of times in a row. It’s predictably nostalgic to hope for another round of the bingeing that got us here in the first place. An intoxicating rebound is exactly what you want when you’re in mid-hangover.

The super ball is gone.

While Reich looks at asset values and their decline as the cause of the contraction, there are deeper driving forces at work. The economy has been driven by demographics and technical innovation for almost a century. The abrupt changes in both are the key to understanding the next steps.

The American non-farm workforce grew from 53 Million workers in 1959 to nearly 140 Million today. Over 50 years, it absorbed baby boomers, a massive influx of women and almost everyone who used to work on a farm. This once in a lifetime demographic explosion shepherded in an era of economic growth and prosperity.

At the same time, technology improvements, largely funded by the government, showered the world with astonishing invention. From color televisions and microwaves to the personal computer, the cell phone and the internet, the results of cold war splitter military spending fueled unprecedented expansion of consumer choice.

Today, demographic growth is less than a third of the average rate for the past 50 years. Technology advancement is slowing to a trickle. These twin forces were the real engines of economic expansion. We haven’t begun to think about how to replace them.

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