Tue Dec 16th, 2008 at 06:47:08 PM EST
One of the most important realizations of getting old is that there are some things that you just aren't going to be able to do, or do any more. This can be because of limited time, energy or health, or money. So you have to chose what you are going to attempt and what you are going to forego.
Suppose we postulate that the US has gotten "old". The present downturn may just be an "episode" of ill health, but what if we can see that we can't return to the bloom of youth even after it is over. (I claim Europe has been "old" since the end of the rapid regrowth after WWII ended as well.)
If we are willing to consider this possibility then we need to decide what are the aspects of society that we will keep and what are the ones we will give up.
I maintain that the US has turned the corner and is no longer youthful for several reasons. The original burst of youthful growth took place when the continent was mostly empty and the frontier allowed for rapid expansion of population and the continual finding of untapped resources. This provided the fuel needed for the rapid growth of the society. This period ended at the end of the 19th Century.
During the first half of the 20th Century growth was fueled by a rapid expansion of America's role in international affairs. Two world wars and the reconstruction efforts afterwards provided opportunities abroad for US investment and markets. Similarly an expansion into the areas where traditional colonialism had ceased provided markets and raw materials in less developed areas. This era ended with the turbulence of the 1960's. Since then the US has failed to impose its will on weaker foreign states using military means and has had to yield control even in areas where it was dominant before.
The decline in influence has been masked for the past several decades because of the failure of the Soviet empire. This left the US as the only dominant power in the world and enabled it to procure raw materials and finished goods at very favorable terms. In addition it has been able to force its trading partners to accept IOU's for the items obtained. In other words, just like many individuals, the country has been living on borrowed funds.
Several things have now transpired at once to throw things into disarray. First, there is the sudden rise of the Asian economies. The rapid rise in the standard of living and level of economic activity in China, India and elsewhere has increased demand for natural resources. Couple this with the doubling of the world population in the past 40 years and the pressures are unprecedented.
Second, the financial system which has been dominated by US and European banks has broken down. The source of wealth is now in the Oil States and in other areas which can provide natural resources. The US (and Europe) can no longer supply their own needs and must buy from elsewhere. With existing technology there is no suitable replacement for liquid fuels, for example.
Third, the world has now "filled up" and the prospects for expansion into areas which were underdeveloped or underpopulated no longer exists. Sure there will be many more people squeezed in over the next 50 years (the estimates are an additional three billion), but they will be forced to live in undesirable locations or under substandard conditions. Most of the growth will continue to be in huge cities of 10 million or more where many people live in slums with no services. This has been the pattern over the past two decades and there is little reason to think the trend will be reversed.
Given all of this the US will no longer be the world's only "superpower", but will be only one economic power among others. The military force that has been used explicitly or implicitly will continue to be ineffective. We can blow things up, but we can't force states to yield to our demands. Iraq and Afghanistan are only the latest failures. Having a huge military is so appealing to many interests that it may continue to be funded even though it no longer functions effectively.
If we project that the US will have to consume a proportion of world resources at rate similar to elsewhere then the economy would have to contract to about 25% of its present size. If we are willing to be more generous and assume some continuing ability to coerce trading partners, plus some industrial and economic advantages then, perhaps the economy may only shrink to half. This decline will be disguised by the changes in exchange rates and inflation, so that the nominal size of the economy in dollars may continue to grow, but people won't be able to buy as much as formerly.
So the US is now faced with some unpleasant choices. It can plan for a smaller economy or it can just let it happen. Recent attempts to pump up the economy in the face of the current downturn seem to indicate that it is the latter course of action that will be undertaken. Present steps are aimed at restoring the "good old days" as quickly as possible. Even the scare of $140 oil hasn't awakened political and social leaders to the need to restructure the economy.
What might an unplanned smaller economy look like?
The best we have to go by are examples from history. There have been many cases where empires crumbled. In every case what followed was a rise in poverty for the bulk of the population, while the wealthy used their power to maintain their wealth. When you are the only ones with money it is cheap to buy loyalty from those without, and it doesn't even cost much. The result is a rise of police power and repression of dissent. This fracturing of society into the rulers and the ruled only makes economic conditions worse and accelerates the economic decline. Slaves don't make good workers and have little incentive to improve society. In the worst cases you get civil wars and revolution.
Conservatives like to claim that this has never happened in a democracy, and it is only in states that were autocracies where such things have happened. But one can't argue by historical precedent. Just because something hasn't happened before doesn't mean it won't happen in the future. Greece and Rome collapsed and both thought they were democracies of a sort.
What might a planned smaller economy look like?
One could have a society where wealth still maintains most of its privilege, but is willing to throw enough bones at the rest of us so that they forestall revolt. This means providing for relatively full employment, health care and a secure retirement. It does not mean maintaining a level of material wealth seen by many middle class people now. The USSR followed this policy (or at least tried to) when it wasn't at war. Many jobs were pointless, but they kept the population busy and feeling like it was part of the effort. Health care and old age were also provided at some level as well. Notice that when the empire collapsed these social services were the first things to go. Even China tried to keep the population under control by providing some level of services until the recent abandonment of guaranteed services.
At a 25% level people in the US would have lifestyles similar to those in Romania or Bulgaria. That is a place to live, adequate diet, basic consumer items like a TV, and so on. There wouldn't be families with four cars for four people, or McMansions. Public transit would need to be expanded since personal vehicles would be out of the question. They would be too expensive and so would the fuel needed to operate them. In addition this would mean a retreat from the exurbs and sprawl communities and their replacement with more concentrated development so that people could get about without owning cars. In general the level of happiness or life satisfaction for those currently living in such conditions is not much different than those in the US and other wealthy western states. Whether people would maintain there current level of satisfaction during the adjustment period is another matter. In some cases of contraction (say Britain in WWII) the population was willing to put up with the decline because they felt it was for the greater good. How it is received depends upon how the sacrifice is presented.
At a 50% level the standard of living would be comparable to New Zealand. I don't think anyone could argue that people there are deprived in any substantial way.
Planning for contraction
Here are some of the steps I think could be taken to lessen the impact of economic contraction. Remember this will take place over several decades.
- Restore urban planning so that depopulated cities are rebuilt. This means subsidizing construction of housing, transportation and, perhaps, even giving incentives to firms to relocate in such areas.
- Increase the amount of regional and long distance mass transit. This is an opportunity for creative thinking. Light rail, monorails, MAG-LEV, electric buses and ideas not yet thought of come to mind. Tiny vehicles like the Smart cars could be leased for short trips where no other options are available. Personal auto ownership would become much rarer. The auto industry would be re-purposed to provide these new forms of transportation.
- Increase regionalism for (light) manufacturing and agriculture. People will have to once again get used to eating and buying what is available, rather than anything from anywhere on earth. Regionalism will also allow for the return of local differences and make travel more interesting. No longer will one be able to get the same McNuggets anywhere on the planet. This will allow for personal creativity. This also means a change in diet away from the factory farming based upon corn-fed livestock and back towards more grains and vegetables. This is less resource intensive and also healthier. Industrial farming requires vast quantities of fertilizers and pesticides which come from petroleum and will also be in short supply.
- Replace materialism with community. More time and energy will be spent on community activities. This doesn't necessarily mean everyone takes up bowling or sitting in pubs, the communities can be virtual, but it does mean that doing replaces shopping.
- Expand social services. This means adopting more of a Scandinavian model: child care, health care, parental leave, free higher education, extended vacations, etc. All these services will require manpower, thus giving employment to those displaced from making "stuff" (or gambling at financial firms).
- Increased focus on R&D. New discoveries are the best chance for overcoming the limitations now faced by shortages of key raw materials like fossil fuels. A viable fusion system, for example would solve the world's electricity problem. It might even allow substitution of Hydrogen for gasoline in vehicles. We don't know what types of inventions and discoveries might come along. Just look at all the change since the invention of the transistor in 1948.
- Proper population planning. This one always gets misconstrued. People think that I'm advocating policies similar to those followed by China or the brutal eugenics ideas of racists in the 20th Century. Advanced economies already tend to have low birth rates and can transition to a steady level of population with only a slight change in incentives and family planning. Poor nations need family planning services expanded, education for women and the ability of them to become financially independent, if they wish. Empowered women do their own family planning if they have access to the needed information and resources.
- Foster democracy. Only democratic states can get the participation of the population that is needed to make such large scale social transformations possible. Autocratic states cannot. People need to feel they are not only part of the process, but helping to design it. The desire to make a better life for one's children is one of the most powerful forces on earth. Better doesn't mean bigger. Given the opportunities and the ability to participate in the planning the people will do the right thing.
Change is inevitable, too many people, too few resources. The current downturn is an opportunity to reconsider how we want the rest of the 21st Century to look, or not.