Next week Washington, and America, welcomes Barack Obama to the White House. Mr. Obama’s historic win will reverberate for years, but it has not pushed the economic implosion off the first page of the Washington Post. Ownership of the “bail-out” may transfer from the Republicans to the Democrats, but all eyes remain on the prize. The dramatic collapse of the leveraged capital house of cards is not merely a “pocketbook” issue, but threatens citizens’ very idea of what the modern economy means – and brings to question how reliable this system we’ve lived in, like the air we breathe, will be in the future. For anyone who thought critically about how the economy functioned – macro-economically, the warnings for just such a collapse as we’ve seen have been issued for some time. Stiglitz, Krugman, and a host of other non-Nobel laureates, have been pointing to the weakness for some time. Here is a good macro-summary if you’re interested –
Krugman’s: http://www.nytimes.com/2008/10/31/opinion/31krugman.html?_r=1

At its most simple, it appears that all the responsible adults minding the machinery of the marketplace put their faith in a perpetual motion machine where goods and services were both produced and purchased with the fairy dust of credit. As the story goes, so long as everyone was confident that values and consumption would continue to rise, credit was viable because the interest cost was covered by expansion of the market and the rise in value. We know about the value part – the bottom fell out; and consumption? Its down.

So is energy use, oils imports and CO2 emissions. The linkage is no mystery, but depending on what threads you pick up and follow you can come to radically different perspectives. Its hard to celebrate the reduction in CO2 emissions brought on by economic hardships that are throwing people out of work. But with production and consumption down, the by-products of our consumer economy are down too; less waste, less pollution or CO2 emissions. The reality is that even folks still secure in their jobs tend to hold back on the conspicuous consumption these days. The point has come home hard that our consumption on credit lifestyle in the West may have come to an abrupt end.

The world of easy credit may have just slipped into the past; and with it may go mass production of cheep consumer disposables. Was that to occur, a lot of factories would become redundant – a situation already in evidence before the collapse as developing countries competed against one-another to build their wealth selling to the international market. In the feeding frenzy that was first low-cost maquiladoras in Mexico, then Vietnam, South America and Indonesia, and now China, it was a race to the bottom: who could cut production costs the most and sell the cheapest. With the meltdown of the consumption economy in the US workers overseas are thrown out of work, US stores close and retail jobs are lost, and the service economy slows down. With what might we replace it if we were to value the concurrent drop in oil use, waste generation, pollution, and CO2 emissions?

For beginners, we wouldn’t return to our supercharged consumer lifestyles. We might reclaim the mantle of citizens of the United States rather than “consumers”. Instead of shopping malls disgorging products that have a life span of less than a year, we might have repair & trading malls where you can have your possessions repaired and maintained and consign unwanted products to specialty shops. Those specialty shops could not only sell your item, but would be staffed by craftsmen who could retrofit any items you might buy to meet your specific requirements – like tailors do trousers. It is easy to imagine a lot more local artisans of all description. The downside to all this is that people’s wages have been the largest factor in cost increases for the past 20 years. Those industries with the hardest time shedding jobs – those that are most people dependent, like healthcare, have seen the fasted rise in expenses. Can we recreate a viable and competitive economy by returning to labor intensive local businesses? More in the next posting…