History And The American Economy: Where Have We Been? Where Should We Go? Part 5 of 5

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Part One --- Part Two --- Part Three --- Part Four --- Part Five The "wired" economy is dwindling. So what's next? Where do we find the next foundation for the American economy?

Answer: Re-imagining, re-inventing, and re-shaping our daily infrastructure to create a "greener" world. Which brings me back to where I started: Thomas Friedman and that piece in the New York Times about the "greening" of venture capital.

Our economic future lies in an investment in the ideas and technology of a "green" economy. We can repair our economy by repairing the planet. Imagining a new infrastructure will require two basic activities:

First, intellectual activity in the form of research and development. Someone has to work out the details of the ideas that will provide the solutions to the climate crisis. Someone has to figure out how to mass produce hydrogen fuel cells, for example, or create wind turbines scaled to single homes. (I'm making up these examples.) (*1)

Second, it will require things: solar panels, hydrogen cells, wind turbines, and a ton of stuff that hasn't been developed yet. Both activities will generate jobs. Lots and lots of jobs.

But only if we get off our asses and start mobilizing what's left of our intellectual infrastructure and begin investing in this new economy. It won't be easy because we Americans are (a) masters of the short-term solution and it's easier to create bailout plans than it is to change the way we think about our daily lives; and (b) no doubt we'll spend years arguing about whether government should or should not take the lead.

But as I noted in an earlier post, democracies are slow. You want it done fast? Call 1-800-DictatorsRUs. But if we don't do it, I guarantee that some other country will. So. Time for us to get busy. Time for us to start electing leaders who understand that the world has changed and we MUST change with it.

As a side, but related note, the historian in me realizes that this might be the historical moment that launches a new political party. The last time a "third" party succeeded was in the 1850s, when a broad cross-section of Americans dedicated to stopping and/or eliminating slavery joined forces under the umbrella of the new Republican party. The structure of our system makes it all but impossible for a third party system to function, so the Republican party survived only by draining support from the old Whig party.

That was the last time an upstart has managed that feat. But if ever there was a historical moment when a new party could elbow either the Democrats or the Republicans off stage, this is it.

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*1: But as noted in the NY Times article with which I started all this, someone also has to fund that activity. I can see it now: In twenty years, Wall Street will collapse again because investment houses will have sold debt-swaps based on green R&D.

History And The American Economy: Where Have We Been? Where Should We Go? Part 4 of 5

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Part One --- Part Two --- Part Three --- Part Four --- Part Five The new economy generated millions of jobs in new research and development -- intellectual activity. It also generated a burst of manufacturing: Back in those old days -- the 1980s -- we American workers built chips, hard drives, plastic casing and so forth.

I was just beginning my career as a historian back then, and I remember wondering how long this new foundation would last. When would the e-economy go the way of the producer and consumer economies? Even then, it was clear that many of the new economy's jobs would go overseas. Asian countries, for example, quickly took over the work of manufacturing the hardware. And in the past decade or so, India and China have latched onto large parts of the intellectual work.

Here's a trivial but telling example: The aesthetics aspects of my two websites -- the parts you see if you visit either one of them -- were designed by a company in Boston. But the "guts" of both sites -- the code specific to my sites -- were built in Bangalore. (*Note: I was referring to my previous website, not this current version.) These days, writing code is the equivalent of the manufacturing of the sort that Americans lost to Asia back in the 1970s. [NOTE: I now only have one website.]

But China and India have also snared large parts of the foundational intellectual labor needed to expand an e-economy. For example, ten or fifteen years ago, China sent its best engineering and science students here to learn. Those students then went back to China to spread their knowledge. Now, however, the Chinese don't need to come here. They have built a world-class university system and are now generating much of the intellectual foundation of the wired economy right at home. (And unless we Americans start taking education more seriously, we're gonna lose all the intellectual work to them.)

In short (or long), the structural underpinnings of our national economy have shifted and changed over the past 150 or so years. We lay a foundation, and then it changes or, as has been the case recently, other countries "catch up" to us.

Here's one way to think it: Imagine the economy as a pie. During the historical heyday of each type of economy, whether consumer, producer, or wired, the U.S. owned most of the pie. In the 1980s, for example, we owned maybe three-quarters of the newly emerging wired economy. We generated the intellectual foundations of computer, and built much of the hardware. Over time, however, other countries grab more and more of the pie. Asians now manufacture and assemble most of the hardware.

So what's the point? The wired economy is dwindling, just like the producer and consumer economies did earlier. Moreover, the "fake" economy of banking, mortgage swaps, subprime loans, and so forth has also proved to be, well, fragile. As more than one economist has pointed out in the past few weeks (and years), mortgage swaps don't produce tangible goods. (*1) So any sensible person ought to be asking: What's next? What will be the "foundation" of our next national economy?

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*1: It's worth noting that during the recent weeks of economic chaos, "experts" kept referring to Wall Street and the "real" economy. The implication was that the Wall Street economy was "not real." Experts also refer to the current economy as a "debt economy": borrowing money is what keeps things going. Not consumption. Not production. DEBT. That's real depressing. No pun intended.

History And The American Economy: Where Have We Been? Where Should We Go? Part 3 of 3

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Part One --- Part Two --- Part Three --- Part Four --- Part Five Thanks in part to the New Deal (and to natural economic cycles), in the second half of the 1930s, the economy began to recover. The eruption of World War II accelerated the recovery process.

War is typically good for the economy and in this case it generated full employment and effectively ended the Great Depression. Because of wartime rationing and shortages of just about everything, however, there weren’t many consumer goods. Instead of spending their paychecks, Americans saved them.

When the war ended, Americans began spending their savings. There was pent-up demand for just about everything, especially housing, cars, and basics like furniture and appliances. The baby boom also fueled consumer activity: millions of kids needed new schools, school buses, teachers, books, shoes, food, etc.

But Americans also enjoyed full employment -- and big paychecks -- thanks to the Cold War. Millions of people worked in the aircraft industry, for example, and in munitions, and in highway construction. (The national interstate system was originally intended as a defense project: if needed, the government could use the highways to move weaponry).

In the 1970s, this “industrial-consumer" economy began grinding to a halt. European and Asian nations devastated during WWII had recovered and rebuilt, thanks to funds provided by the U.S. Marshall Plan, the World Bank, and the International Monetary Fund. These new economies rested on highly efficient industrial systems that could compete with and often surpass American manufacturing.

At the same time, the oil-production nations gained political clout (in part because European colonialism ended) which allowed Saudi Arabia and other oil-rich nations, to gain more control over their resources. (The U.S. economy, of course, was dependent on that oil. If you want to know when, why, and how our current oil-terrorist woes began, study up on U.S foreign relations in the 1970s.)

The result? In the 1970s, and with alarming speed, the U.S., industrial production faltered as companies shifted manufacturing overseas. The structural underpinnings of our economy began to give way.