What we've seen of Obamanomics in its beta stages is something bold, something risky and something extraordinarily expensive -- and all of this is so by necessity. We certainly hope the president's prescription will turn out to be exactly what the ailing economy needs. Of course, we'll have to wait a while for that judgment. In the meantime, the more fundamental, and troubling, question looms: Even assuming the success of president's plan, will this new sustainable economy he talks about require a reduced standard of living for Americans?
We have to admit that many of the factors that drove what we remember as the good economy are the same ones now being blamed for the collapse. In an economy so dependent on consumption, most of the spending was deficit spending. And much of that willingness to spend beyond our means was driven by the "the wealth effect," the sense that we were richer than we were because we lived in houses with spiraling values.
We did not save because we had 401Ks that always went up -- until they didn't -- and because, well, there was always the house. Now we are chastened by a different reality, and chastised for our reckless behavior. The president talks about his plan to keep "responsible homeowners" in their homes and laments the era of "borrow and spend." He proposes instead a time of "save and invest." The tagline on the budget proposal he sent to Congress is "A New Era of Responsibility."
But "save and invest" did not create the economic boom of the 1990s, to which Obama often points as a model. It was consumer spending based on multiple home equity loans and ever increasing credit card maximums that fueled much of that growth. We are now urged to change our ways. In his press conference on Tuesday, Obama said that the "the most critical part of our strategy is to ensure that we do not return to an economic cycle of bubble and bust in this country. We know that an economy built on reckless speculation, inflated home prices, and maxed-out credit cards does not create lasting wealth. It creates the illusion of prosperity, and it's endangered us all."
But Mr. President what does real prosperity look like?
There is a fair amount of talk lately that the severity of the current economic downturn will produce new generation of depression-era babies, people terrified into thrift and frugality by the hard times. The Wall Street Journal noted earlier this year that, "U.S. household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008. In the same quarter, U.S. consumer spending growth declined for the first time in 17 years." And nothing gotten better since.
But where does this fiscal chastity lead us? What replaces the frenzied consumer spending that gave the economy its gallop over the last 20 years? Responsible, within-your-means purchases, unaffected by the $150 billion in advertising spent annually selling us stuff?
That sounds like 1952, and, frankly, Americans are just not going to go for it, because the modern manifestation of life liberty and the pursuit of happiness is the ability to go to the mall. That was the whole point of expanding the middle class, so they could add the economic clout to the economy.
The problem, of course, is that, while they were propping up the economy over the last couple of decades, those middle class workers were not reaping their fair share of the benefits. In fact they were getting screwed by the financiers we're now forced to rescue. Since the 1970s, American workers have become more productive without getting paid for those increases in productivity. And it was those very people who went into debt to maintain their standard of living and who kept the economy going as long as it did.
So while we've been wracked with angst about the failures of the financial system, it is really the slow collapse of the wage economy that may be most responsible for getting us into the ugly position we now find ourselves. The coming fight over the Employee Free Choice Act in one obvious place to have this discussion, but that is likely not the way it'll go down. Simply on the symbolic merits, EFCA should fly through the Congress; we know it won't. I sense -- and I could be wrong about this -- that the administration is presently more willing to spend its political capital trying to reassure Wall Street than passing the EFCA. But they should not let the political theatrics obscure the fact that there is another sector that is really too big to fail. The people who will rebuild the economy are workers with enough money in their pockets to take care of all their needs without going into huge debt. That is a sustainable standard for living that could drive support a sustainable economy.
