Thursday, April 30, 2009

Mr. Gloomy

Topic: Recession

One of the weird things I keep hearing from people about the current US recession is a paradoxical combination of sentences that goes something like this: 1. The state of the US economy during those years that seemed to be the height of prosperity was illusory, unsustainable, and amounted to a huge bubble that was bound to burst. 2. Now that it has burst, let's hope we get back to the way things used to be!

But why would we want to? The President talks about rebuilding the economy on a stronger foundation, and different commentators have different ideas about how to return to the "good old days", varying from government meddling to doing nothing and letting the Market fix everything. And yet I don't hear a lot of talk about the possibility that the US economy just can't ever return to former levels of growth.

Now, I assume that the recession will eventually run its course; and I would be the first to say that anything is possible in the future. However, there are two serious reasons to suspect that the economic slump that the US is in will last at least a generation:

1. The ongoing collapse of the manufacturing sector. The first issue is this shift over the last few decades from an industrial economy to a "service-based" economy: economists have talked about this as if it was a historical fait accompli, akin to the transition from feudalism to industrial capitalism. However, it's not at all clear that a "service economy" is remotely tenable. In fact, this recent collapse might be a sign that the equation: import goods/export services simply doesn't work- we'd need to sell a lot more services- some estimate 300% more- in order to pay for all the goods we hope to import. So a lot more Americans need to be making the beds of European tourists!

Dean Baker, writing in Dissent, argues that the "claim that the U.S. economy can be sustained without a sizable manufacturing sector is an... absurd proposition." So, how did it seem to work for the last few decades as manufacturing was declining? That's easy: by patching the holes with debt. We know that.

It seems to me that the jury is still out on the service-based economy. The 90s saw reams of books promising that the younger generation would revitalize our nation with their creativity- degraded cities would become bohemian meccas in which hipsters sold each other screen printed tee-shirts and saved the country by surfing the Internet. Instead, a lot of us live in towns where one generation ago, young people would have had good-paying factory jobs; and now, they work at the GAP until they can afford to leave. Or, they end up as a manager at the GAP and accept a less-rewarding life, downsizing their dreams, perhaps skipping out on having kids.

2. The Baby Bust. This brings us to the second big problem. Nobody is talking about population decline. An article in First Things warns that we also have to think about the "declining demographics of the traditional American family": essentially, the American population is not replenishing itself. There are too many single-parent households, "single-person" households, and young people who don't particularly want kids. The result is that a lot of houses built for nuclear families will go unsold when the next generation comes along and prefers to live alone in condos, and many public services simply won't be covered by that generation, or the even smaller generation that comes after them. (Well, unless we allow a lot more immigration.)

Actually, native-born population decline is happening everywhere in the Western World for a number of reasons. First Things, understandably, focuses on the culture wars- and it is worth visiting a Catholic or Mormon Church on a Sunday and seeing just how many kids religious couples are having! However, some of us who are of breeding age just can't afford to have children. So the solution to the problem isn't clear.

It just doesn't seem like it's happening in the United States. This is because unprecedented levels of immigration have made up the difference. And the country might well find itself- like Canada and much of Europe- supplementing its declining native-born population with easy immigration. I've said here before, that's absolutely fine with me. But I wouldn't try to sell that idea to the American public. If the public really does insist on restricting immigration- and a declining economy will help on that front- the declining native population will become much more noticeable.

So, honestly, I hate to be Mr. Gloomy all the time. But I'm at a loss as to how a nation with a vanishing manufacturing sector and a population that really isn't reproducing itself can ever hope to achieve the "heights of prosperity" that it once bought with foreign debt and maxed out credit cards.

Is there a light at the end of the tunnel that I'm not seeing here?


Brian Dunbar said...

I've seen articles that suggest that manufacturing jobs are shrinking as a percent of the workforce. But that productivity is increasing. Fewer jobs, but greater output.

We don't complain much that agriculture employs a fraction of the workforce compared to 1890. We just found better things for the farmhands to do.

At work we have 70% of our workforce in Asia, the rest in the US.

The US facilities bring in 70% of our profit.

This varies by quarter of course. And we might be unique. And anecdotal evidence is no way to run a railroad.

Still - there are reasons to be cheery.

Rufus said...

Yeah, I think that people are definitely finding other work- I'm pretty sure Wal-Mart is the largest employer in the US now. So, unemployment can be solved. I'm just not sure that the one sector can generate enough money to cover the other sector being located around the world.

Also, I guess there's the issue of it being a lot easier to make a good life for yourself working on a factory line than working as a retail employee, which could seriously change consumption patterns.

I think my feeling is that it's way too soon to say that we can replace the one sector with the other and do fine economically- which, of course didn't stop economists from saying just that. My favorite was probably a fellow who argued back in 2006 that there probably wouldn't be any more recessions in the future, since a majority now work in the service sector and recessions don't affect the service sector like they do manufacturing.