The Long Slowdown Continues

One of the things I find most odd about our economy, perhaps dispiriting is the better word, is that no matter how hard I try, I find it difficult to become truly upbeat about it. We appear stuck in some gigantic rut the boundaries of which prevent us from breaking free and getting back anywhere close to a strong sustainable, and some cases even noticeable, recovery.

Indeed for all intents and purposes the recovery is looking more like a statistical quirk rather than a true increase in across the board activity.

This morning’s news that durable goods orders dropped 3.6% in April is hardly the stuff of great growth. It is, rather, yet another sign that whatever team we had is fast dissipating. I realize that a large part of the decline was in aircraft and autos, both very volatile areas, but the residual decline was still 1.5% a very poor performance for an economy supposedly growing. This makes the third decline in the past four months, and as I have said before, at some point we have to stop defending these declines as being oddities and simply admit that things are not very good.

Couple this with the fact that home prices, according to the Federal Housing Finance Agency, dropped a further 2.5% in the first quarter, and its hard to generate much enthusiasm at all for where we are.

Profits are good. That’s about it.

Does anyone care?

Not that I can see. The economy is still way underperforming. We have excess capacity sitting around unused. Corporations have mountains of cash idle and are chronically underinvested. In the interest of a perceived and false need for austerity most of our states are cutting into the muscle we rely upon to produce future wealth – education is being slammed even though politicians the country over bemoan our lack of skills to compete. And our totally dysfunctional political system replaces policy debate with outright lies and contradiction.

This political gridlock is compounded by the monoculture that pervades the country. Everyone in power, whether in politics, business, banking, or the support areas like academia, have all fallen under the spell of market magic economics and its associated finance, law, and accounting expressions. The problem with monoculture is that it leaves us few degrees of freedom in our decision making. By being so clustered around the same set of ideas our elites have squeezed out any real debate about alternatives. The thrall of those ideas is debilitating. The elites benefitted from them by way of excessive profit, outlandish incomes, a complete breakdown in ethical conduct, and an ability to establish rent seeking opportunities at our expense, but the game is slowly ending. Their self-referencing system became enormously efficient in hoarding and allocating wealth within the elite. But like all systems when it becomes too efficient, it lost its ability to adapt. It has one response to all problems: more market magic. This doesn’t work too well when it is market magic that is the source of the problem.

Deregulation opened up opportunities for profit. The bias in wealth creation was to move it upwards. The last three decades have been a spectacular success for the social engineering envisaged by right wing ideologues and their economist enablers. But the well has run dry. Now there is little left to re-direct upwards. To keep up the same pace of wealth accumulation at the top, the elite now has to undermine the last bastions of the middle class – Social Security and Medicare.

They may find this difficult to do. Yesterday’s special election in western New York produced a warning: a reliably Republican seat fell to a Democrat whose message was centered around an attack on the Ryan plan. Perhaps this was a sign that even our supine middle class can be shaken into resistance. We will have to wait and see.

Meanwhile the language and policies of the elite rely on worn out ideas spawned decades ago and brought to life in the think tanks and business schools of the 1970’s and 1980’s. Those ideas pre-dated the internet. They conditioned the thinking of millions of managers now at the helm of business. They became the core language of both political parties. They framed our regulatory and legal discussions.

And they undermined our economy.

We lost our way because we lost our balance.

We applauded greed and self, and used that to justify the defunding of community. Things like the notorious anti-property tax Proposition 13 in California stand out now as monuments to a false doctrine and an abandonment of standards. Likewise the long standing and successful effort to deregulate banking, which merely created opportunities for a few people to amass wealth at our expense and to create the illusion of a healthy economy despite the onset of rot at its center.

When such an elite is so committed to itself, and is so resistant to new ideas, it will lead a nation into the wilderness. Our long stagnation is testimony to that. Looking back over the past decade we can rightfully argue that our current slowdown began years ago. The entire Bush era produced little true energy or lasting economic growth. Profits boomed. Wages stagnated. Real estate sucked in wealth to the detriment of productive capacity. Standards were lowered. Discourse undermined. Ordinary families struggled while a few, a very few, wallowed in golden age style luxury. The whole thing blew up in an orgy of misdirected greed and ignorant investing.

And now they want to persuade us that we cannot afford what’s left of the middle class lifestyle. Or that this recovery amounts to more than we all feel it is.

The only reason we are having a debate about debt, inflation, or the deficit is because those things matter to the wealthy. They’re the ones who would suffer most were our current budgetary problems to persist. The banks stand to lose. As do creditors generally. So austerity protects them by shifting their potential loss onto those who can least bear the burden. This is so short sighted it is almost beyond belief. But it doesn’t surprise me. The long slowdown is their creation. It is the logical outcome of decades of economic mismanagement and the application of false economic doctrine. They now need to save themselves. Which is why the media latches on the even the most stupid of plans when presented as a savior. And it is also why the media finds it hard to act as a neutral critic: it too has lowered its standard, and is populated by people educated or raised within the bubble of the market magic belief system.

Maybe they will all succeed in plastering over the cracks and arguing that this stagnation is the best we can achieve. maybe they are content with the story that we have to settle for less and that our great entitlement programs are no longer affordable.

When you hear this line of reasoning ask yourself how we arrived here. Who led us here? What were there ideas? Who benefitted along the way?

Above all else we need to wonder out loud why it is that the American economy, deep as it is in natural resources, talent, and and tireless workers needs to abandon its poor, its elderly, its sick, and its young. Why is that?

My guess is incompetent leadership. Rotten lessons taught by misguided professors to decades worth of students who are now faithfully leading us astray as they implement outmoded ideas and false economics.

They may defend their profits. They may still have all those bank branches. Those legal and accounting fees will provide for several homes for each partner. They will still enjoy those very important summit meetings where those who know rub shoulders with those who do stuff. They will still donate some of their wealth to great charities to spread the wealth a little.

But will they have paying customers?

Will the demand be there?

Do they care?