Social. Political. Economic. Career| Seyed Ibrahim

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Inflection & ‘The Great Disruption’

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Thomas Friedman wrote an op-ed titled “The Inflection Is Near?”. It talks about what the current recession could possibly tell us.

What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: “No more.”

Here is one of the reader’s comments, with emphasis on “What will a sustainable economy look like?” :

It’s not just the environment – it’s the entire economic model, based on principles a 7-year-old can see through. In 1929, it wasn’t just about rampant greed and financial manipulation – the buying power of the populace was simply inadequate to sustain the productivity of the capitalist engine. After WWII, the solution implemented was the consumer economy – make staples less durable and convince people to buy things they don’t need: “Throw it away and buy a new one, and we’ll all have jobs.”

We were able to sustain this for awhile, but ultimately we had to start borrowing to continue buying things we didn’t need. From Reagan to Bush II, we borrowed more and more – against our future earnings, and then our children’s – to maintain the illusion of prosperity. In 2007, I believe household debt rose by more than household income; i.e. we were spending twice as much as we earned.

Meanwhile, the Fed was printing more money each year than the economy grew in real terms. Couple that with implementing mechanisms for the rich to rake off ever more money, and the middle class fared worse and worse.

Checkpoints:

1. In 1968, my Ivy League tuition and fees were $2,400. This year it’s $36,504 – 15 times as high.

2. In 1968, I bought my first car – a 6-year-old Chevy Biscayne with 84,000 miles, for $200. A quick search finds a 6-year-old Camry with 80,000 miles currently goes for around $11,000. It’s a better car, but still – that’s 55 times as much as I paid in 1968.

3. The house I moved into in 1970 was worth about $24,000. Now it’s worth $850,000 – 35 times more.

4. My starting engineering salary in 1969 was $7200. Latest Dept. of Labor statistics say that the current equivalent starting salary is $45,000 – an increase of 6.25.

The car has gone from 2.7% of a first year’s salary to 25%; tuition fees has gone from 33% of a years’s salary to 81%; the house has gone from 3-1/3 times a year’s salary to 19 times a year’s salary. Worse, after 40 years of various engineering and management roles (including Managing Director of a small firm), in my current very senior engineering position I’m earning only a fraction more than twice the salary of a 21-year-old, fresh out of school. Cut the current percentages for a starting salary in half, and you’ll get the amount of purchasing power I’ve lost in the last 40 years of work.

In other words, there’s not going to be a “recovery”. We can talk about energy efficiency and independence (remember we started that in 1978, but Reagan killed those programs and instructed the Department of Energy to concentrate on nuclear weapon development), but energy to do what? It takes far too few people to produce the food, shelter and clothing we require; the rest of us are engaged in making, buying and selling things we don’t need. Only we stopped being able to afford them 15-30 years ago, and now we have to pay the bills. Car sales are down 30-45% just in the last few months; they’re not going back to prior levels in the foreseeable future, if ever. The stores which are being shuttered are not going to come back, and surviving competitors are not going to take up the slack – there isn’t any. We’ve killed the goose; demand was unsustainable, propped up by enormous debt, and it’s not coming back.

So where are the jobs going to come from for a sustainable economy? The less energy we use, the more the energy companies will have to charge (and the government – see today’s articles about new taxes to make up the decline in gas tax income, as people drive less and cars become more efficient). Any attempt to return to buying rubbish just to keep the economy turning over is doomed. Where’s the tax base going to be?

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Written by S Ibrahim

Mar 9, 2009 at 10:22 pm

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