Joseph Stiglitz has a nice thought-provoking piece in the latest Vanity Fair on the underlying causes of the Great Depression and analogues to our current economic situation. The crux of his argument is that, just as in the 1920s and 1930s, the economic struggles of today are not the result simply of problems in the financial industry. Instead, they are part of a larger economic shift taking place as the United States moves from being a manufacturing economy to being a service economy, just as the Great Depression was ultimately the result of a fundamental shift from an agricultural to an industrial economy.
He makes a compelling argument, and one that, admittedly, is open to interpretation for how to proceed from here. Stiglitz, for his part, advocates a series of massive government investment programs to help goose the transition along, like more funding for education, basic research, and cleaner, more efficient energy production and a return to much tighter regulation of the financial industry. But, whether one agrees with those prescriptions or not, the fundamental analysis of our current situation--the transition to a new economy--can be an inspiring one.
Inspiring how? Because it gives hope. Because if there's a transition underway, then there's another side we can get to. It's a way to break out of the rather vicious Sophie's choice of a declining manufacturing economy. Is it really such a bad thing (from a macro perspective) that our manufacturing jobs are rapidly moving to China and Southeast Asia? If your fundamental premise of an economy is that it needs to make big, heavy, physical things, then the picture doesn't look so good. There are only two scenarios there:
1. We will continue to see our prosperity slip away overseas as one manufacturing job after another leaves, or
2. We somehow turn it around and reestablish the perfect, glorious economy of our golden days.
And what would #2 look like? The old 1950s and 1960s Eden where you got a job with a big factory right out of high school and could stay there the rest of your working life (and maybe your kids could get on, too)? A world where, when you get on up in years and retire you have a reliable pension and can live out the rest of your years in the exact same house you've been in since you got started?
Is this the best we have to offer, the real American Dream? It doesn't sound all that terrible, but it doesn't exactly sound like the stuff of dreams, either.
The transition to a "service economy" offers some hope--or, at least it does if you define service as a "knowledge economy" or "professional service" type occupation and not more rote services like answering customer support lines or cleaning motel rooms. And I think Stiglitz is talking about the former.
If he's correct, it means that there's a green, unexplored field out there for continual expansion and improvement and innovation, a pretty good chance--though, my no means, any sort of guarantee--for the United States to make the turn and not only to stay a prosperous nation but to grow and lead the pack.
The true test, it seems to me, will be how we handle the transition and whether we can repeat our past performance when, in the middle part of the 20th Century, we successfully transitioned from being one of the world's leading agricultural economies to being the leading industrial one. Time will tell, but we have a lot of assets on our side.
He makes a compelling argument, and one that, admittedly, is open to interpretation for how to proceed from here. Stiglitz, for his part, advocates a series of massive government investment programs to help goose the transition along, like more funding for education, basic research, and cleaner, more efficient energy production and a return to much tighter regulation of the financial industry. But, whether one agrees with those prescriptions or not, the fundamental analysis of our current situation--the transition to a new economy--can be an inspiring one.
Inspiring how? Because it gives hope. Because if there's a transition underway, then there's another side we can get to. It's a way to break out of the rather vicious Sophie's choice of a declining manufacturing economy. Is it really such a bad thing (from a macro perspective) that our manufacturing jobs are rapidly moving to China and Southeast Asia? If your fundamental premise of an economy is that it needs to make big, heavy, physical things, then the picture doesn't look so good. There are only two scenarios there:
1. We will continue to see our prosperity slip away overseas as one manufacturing job after another leaves, or
2. We somehow turn it around and reestablish the perfect, glorious economy of our golden days.
And what would #2 look like? The old 1950s and 1960s Eden where you got a job with a big factory right out of high school and could stay there the rest of your working life (and maybe your kids could get on, too)? A world where, when you get on up in years and retire you have a reliable pension and can live out the rest of your years in the exact same house you've been in since you got started?
Is this the best we have to offer, the real American Dream? It doesn't sound all that terrible, but it doesn't exactly sound like the stuff of dreams, either.
The transition to a "service economy" offers some hope--or, at least it does if you define service as a "knowledge economy" or "professional service" type occupation and not more rote services like answering customer support lines or cleaning motel rooms. And I think Stiglitz is talking about the former.
If he's correct, it means that there's a green, unexplored field out there for continual expansion and improvement and innovation, a pretty good chance--though, my no means, any sort of guarantee--for the United States to make the turn and not only to stay a prosperous nation but to grow and lead the pack.
The true test, it seems to me, will be how we handle the transition and whether we can repeat our past performance when, in the middle part of the 20th Century, we successfully transitioned from being one of the world's leading agricultural economies to being the leading industrial one. Time will tell, but we have a lot of assets on our side.
