Post-war recessions have averaged 11 months. Why is this one taking so much longer?
Because this is no recession. We’re treating the wrong disease.
In 1990, in my book Penturbia, I predicted that depression—not recession—would likely strike at some time during 1990-2017. It happened. Unemployment has already risen for over three years and remains stuck at more than 9 percent.
My theory of prosperity and depression is based on a fundamental correction to standard economics: Economics assumes that individual decision-makers do not influence each other. Of course they do. People interact through a multitude of channels such as movies, plays, lectures, radio, TV, advertising, political campaigns, emails, web-sites and personal contacts.
Via those many channels, ‘We the People’ periodically become dissatisfied with the current mode of life and come to an agreement on how we want to reorganize our lives and the economy. We shift the paradigm by which we live, thus creating a new society.
Every new society commands a specialized economy able to satisfy its unique demands. The two together make up a “socio-economy.”
Since 1790, five successive socio-economies have emerged in the United States, each pushing its special objectives to an extreme. Each time, resulting excesses eventually give rise to a completely different socio-economy. In two centuries, America shifted from aristocracy to small-scale Jeffersonian democracy, to vast industrial expansion, which was, in turn, replaced by consumer dominance. In the 21st century, consumer dominance is surrendering to what we call ‘Responsible Capitalism.’
Depressions are caused by the extremely high uncertainties accompanying the shift from one socio-economy to another. Recessions are merely brief economic squalls. .
Depressions are deeply rooted. Consider the Great Depression.
Around 1845, impelled by their “manifest destiny,” our predecessors began to abandon Jeffersonian ambitions favoring small farms and businesses and began to dream of building the world’s most powerful industrial Colossus.
Working for pitifully small wages six 10-hour days a week, our ancestors built railroads, commercial farms, mines and industrial cities. They worked, pinched pennies, saved, invested and succeeded. From 1840 to 1900 Chicago’s population leaped from 4,500 to 1.7 million!
After 1900, the construction of still more railroads and still more industrial cities was reaching a limit. Overproduction some warned. Marxists confidently predicted the end of capitalism. Americans merely shifted to a new variety of capitalism.
In ensuing decades, the countervailing Consumer Socio-economy slowly and painfully crawled into existence. Americans attempted to transform themselves into little kings, masters of their own tiny empires in suburbia. However, they couldn’t learn to consume fast enough to forestall the inevitable catastrophe, which erupted in 1929.
Unfortunately, like today’s Chinese, those great grandparents of ours were hopelessly addicted to saving. They couldn’t and wouldn’t spend enough. Besides, we were hopelessly unprepared. We lacked an abundance of cars, highways, suburbs and an airlines industry to create easy access to California, future capital of suburbia. We lacked tempting new suburban houses, TV, television advertising, consumer credit and credit cards. And we lacked affiliations with labor unions, a necessity for higher wages.
Little by little we learned our roles as consumers. Depression turned into prosperity. By the 1960s, the consumer-minded Little King was in high gear.
Beginning with Rachel Carson’s Silent Spring, the 1960s also saw the birth of modern-day environmentalism, core of the fifth and latest socio-economy, enemy of the Little King. Call it Responsible Capitalism. We’re increasingly celebrating the nobility of spirit that gives more than it takes. Bill Gates and Warren Buffett are leading millionaires and billionaires to give away large portions of their wealth.
We worry about climate warming and volunteers stream to New Orleans, Asia, Haiti and Pakistan. Although Responsible Capitalism will eventually dominate America, the socio-economic conflict it is creating with America’s long-established consumer economy is creating a depression.
The current depression is precipitated by the uncertainties of the succession from the Little King to Responsible Capitalism and by mounting opposition to the Little King’s excesses, its increasing debts, deficits and careless violations of our planet. By 2020, the Little King will be as dead as the Roman Empire.
We don’t yet know enough about the jobs to be created. To cure today’s depression I propose a federally funded task force.
First, it should engage the American public to elaborate the meaning of Responsible Capitalism—the new way of life, the likely occupations, cities, regions, houses, families, professions, medicines and products. We should award contracts and prizes for winning ideas.
Second, ideas and proposals should be invited on how best to eliminate the unsustainable and eventually unwanted Little King.
The effort to deliberately fashion our own socio-economic future will mark a crucial stage in the evolution of mankind. We’ll specify how we would prefer to live and work in the decades ahead. And we’ll speed creation of the 9,000,000 needed new jobs.