Wednesday, March 4, 2009

What Should the Recovery Look Like?

The idea seems to be out there that if all goes well, in a year or two or maybe five we should see the DOW return to above 10,000, housing prices should gain back some of the 30 percent of value they have lost, unemployment should be below 5 percent and people should start buying cars, houses, and stuff again just like before.

This at least implicitly assumes that the terrible situation we see now is happening because our economy is merely out of adjustment and with the apropriate corrective measures it should be humming right along again. John Maynard Keynes said something similar about the Great Depression - comparing it to an automobile he said that we were having "magneto problems" but that the basic engine was sound. Now some 70 years later I don't think that we can say this anymore. The basic system is not sound, in fact it is rotten to the core and is a sham confidence ponzi game that has been going on for at least the last 30 years due to money created through credit or the last 60 years due to the widespread availability of cheap oil.

So for years we have been living with this dislocation and enjoying ourselves, but now reality is intruding.

Some have pointed this out in a limited way. Paul Krugman mentioned the other day that the problem with all the plans for helping the banks is that no one seems to realize that the bad assets are actually bad. Instead they expect to get value for them at some point, somehow, so that these losses won't have to be put on the balance sheets.

But the problem is more than just bad mortgages and credit default swaps. 70 percent of the US economy is based on consumerism: buying and selling stuff to each other. This does not create value, and is not the basis for a sound economy.

So a realistic assessment of what the recovery should look like might be:

- full employment at 20 hours a week
- everyone has somewhere to live (shelter)
- everyone has food
- everyone has health care
- everyone can get where they need to go by public transportation
-local agriculture is the norm rather than giant agribusinesses, and everyone has access to community garden land

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