Nobel Prize winning economist Paul Krugman recently opined that the global economy is in a freefall, and that it could get much worse. He also noted in his regular column that deficits be damned, the government should spend its way out of the problem: that a protracted deep recession is ultimately worse than debt.
A return to Keynsian sensibilities is probably the right posture to take here: let’s not forget that those who have been trumpeting the sanctity of the infallible free-markets are those who were not yet born when similar circumstances dealt a crushing blow to our country in the 1930s. There is a knee-jerk reaction by people (including myself) who don’t quite understand all the nuances of debt and deficit spending to deride it, largely thanks to hearing the chorus of deficit hawks over the past 30 years.
But if anything, this situation points to something more fundamental: that our economic behavior for the past 10-50 years is unsustainable. Not only is it “economically unsound” in terms of the very system we use to define it (“free-market capitalism”) but destructive and short-sighted in terms of limited global resources.
At some point in our history, the idea of humanity intervening with public policy to prevent self-destruction has fallen out of favor and labeled socialist, or communist. This argument is founded on the premise that once power is focused, it tends toward corruption and oppression. While this is true some of the time, it would wrong to assume that it is a universal truth. This would be like saying that any form of discipline is child abuse.
The merits of deregulation and laizzes faire are deeply ingrained in our culture, but the champions of this dogma have fallen silent in recent months. As there are no athiests in foxholes, there are no free-market champions in a severe financial crisis.
In truth, the popularity of free-market mythology is a recent fad. For most of the 20th century, during her golden age, when the boomers were enjoying unprecedented prosperity, the US was governed by mixed bag of socialist and capitalist policies. The balance between these has been an ongoing experiment. During the past 30 years the trend has been the dismantling of regulatory structures. With it brought more flexibility for growth and more risk. There is an excellent argument that the problems of our overheated economy were the result of the wrong intervention (low interest rates and subsidized financial sectors gone awry), however without this artificial bubble, what would the US and world economy look like today?
Now the reaction is to again impose control and artificially stimulate a continuation of the same flawed system.
While we certainly don’t want a retraction so severe that our economy is crippled for years, it is time that our nation returns to sensible behavior of personal savings and consumption. The lifestyle and patterns of consumption of the United States have to change, and in order to continue we will require intelligent solutions to replace mindless destructive consumption as the basis of our economic growth with creative work and sustainable practices.