Just reading the newspapers gives me a daily diet of economic gloom. For example, my pessimism for today (Aug. 26) started with the headline of my local newspaper this morning. The Pittsburgh Tribune Review delivered a banner message, “Record Red Forecast at $1.58 Trillion.” (I think they printed the newspaper before the word came out that Sen. Ted Kennedy died.)
Then for a national perspective, I looked at The Wall Street Journal, which published a slightly different alliteration, “Decade of Debt: $9 Trillion.” And finally, for an international view, The Financial Times summed it all up in characteristic British understatement, with, “US Says Debt Outlook Worsening.” Oh, you don’t say.
The big problem – obviously, the headline issue – with the US economy is too much debt. (That’s the BIG problem. There’s a long list of other problems after that.) And the debt problem is getting worse, not better.
Debt is ubiquitous across US society. Debt permeates the culture. Practically the whole nation has bitten off more than it can chew. Within the past two generations, the US economy has transformed from what Harvard historian Charles Maier calls an “empire of production” (which is what won the Second World War, for example) to an “empire of consumption.”
The lunch bucket-toting factory worker, or the beam-walking riveter constructing a skyscraper, symbolized the former empire of production. Those iconic workers are no more. They’ve been replaced by the image of vast tracts of McHouses blanketing the landscape. Or of parking lots filled with new cars outside coast-to-coast malls, with their owners inside maxing out their credit cards.
It’s the difference between an economy that creates surplus capital and an economy that consumes capital to gross deficit. Professor Andrew Bacevich of Boston University summed it up this way in his recent book, The Limits of Power. “The evil genius of the empire of production was Henry Ford. In the empire of consumption, Ford’s counterpart was Walt Disney.”
Come to think of it, we should be so fortunate as to be indebted just because we collectively took too many trips to Disneyland. As a nation, the US has borrowed and spent far beyond its means. You know what I mean. I don’t have to get into the details on that point. In particular, the political class just can’t seem to say no.
The other side of that debt coin is a widespread inability to repay. Households are so deep in debt that they’ve stopped buying, and I don’t care what the so-called consumer confidence surveys say. Less buying means that business profits are down. Where businesses are showing profits, a lot of it is because they are goosing the bottom lines through layoffs and spending cuts.
Layoffs? That’s putting it mildly. Many of the recent job losses are permanent. They’re structural. It’s not just the good old days, when the company said, “Go home and we’ll call you back in a few months.” No, in many cases, the jobs are gone forever.
It’s not just factory jobs, either. Those jobs were the first to go. The US economy lost millions of its old-line factory jobs over the past 25 years or so. It brought us into the age of the Rust Belt. Some economists and deep thinkers bragged about how this was somehow “good” for America. (Call me old-fashioned, but I could never quite figure that out.)
Now people with white collars are getting hit with permanent job losses in sectors like banking and law. Many parts of the nation’s financial districts are the new Rust Belts of America.
There are former lawyers waiting on tables, stealing jobs from the traditional class of table servers, starving artists. At many silk- stocking firms, even the formerly sacrosanct legal “billable hour” is under attack. And I know doctors and architects who’ve been laid off.
So joblessness is up, and it’s not about to come down anytime soon. With joblessness up, tax collections are down across the board. Unemployment compensation accounts are running out of money. Public assistance accounts are running down. Some states want to give early release to prisoners to save the costs of incarceration.
In Michigan, for example, some counties are no longer repaving the roads. They just grind the asphalt to gravel and save the cost of paving. It’s a foretaste of things to come, I believe.
I don’t see where the problems of indebtedness have been cured. We’re not even close. Maybe it’s my inner bankruptcy attorney at work. Where’s the wipeout? Where’s the discharge? How has all that bad paper out there been voided? It hasn’t.
Byron W. King
for Markets and Money