Wednesday, September 24, 2008

Downsizing America


I’m not an economist. But in these days of financial upheaval, it behooves us all to pay more attention to what’s going on.

As I understand it, the $700 billion plan to bail out the failing financial services industry is intended mainly to keep the credit system from collapsing. Treasury secretary Hank Paulson warns that failure to approve the plan will mean that Wall Street will be unable to back debts, which will cause the loss of credit to thousands of businesses of all sizes and many millions of Americans, resulting in massive job and home losses.

One of the problems is that the American economy as it is currently structured runs on credit. Debt is ubiquitous and businesses cannot run simply on what they have in their coffers at any one time. Businesses in today’s economy cannot survive without constantly growing, and they cannot grow without substantial credit. As such, businesses survive day-to-day by running on credit. The loss of easy and convenient credit, backed by the solidity of Wall Street, would mean that those businesses would not survive.

Unfortunately, the average American consumer has followed suit. We also live on credit. Mortgages have been with us for a long time, but now most buy their cars, vacations, and even groceries on credit too.

Essentially, even if many individual American families have savings, America on the whole lives paycheck to paycheck, borrowing and borrowing and borrowing. That’s what got us into this mess.

It seems to me that the proposed solution would just be more of the same. We would add close to one trillion dollars to the national debt, as before, counting on better days to come. A bailout of that size would be more of what got us into this mess in the first place.

And all it would do would be to prolong an unsustainable economic structure.

That structure doesn’t just back up the American economy, but the entire world’s economy. America is the powerhouse that drives the international markets, and even now, with American economic prestige falling, the dollar, backed up by no commodity standard, is
still the preferred currency of the world markets. The American economy is intricately intertwined with the world economy.

The cost of living in the US has gone up and up in recent years, in large part because everything we buy is so intertwined with international trade. We export most of what we produce and import most of what we consume. Even when we buy American goods at the store, the markets are too intertwined to keep the costs of those goods down. Essentially, when you buy an apple at the supermarket that was grown only 200 miles away, you’re still subsidizing the apples in the next bin that were grown in New Zealand. And you’re still paying to export American produce to other countries.

And that intertwining of our economy also contributes to pollution and the destruction of our environment. It makes big firms richer and richer, giving them the money and power to dictate deregulation that allows them to go after bigger and bigger spoils, no matter the environmental damage.

But what if it weren’t so? What if all America needed to worry about was its own economy, its own citizens, its own workers? Imagine an America that provided healthcare for all residents,
provided a free college education for all young people, and actually produced goods that supplied its own people?

Is being an economic superpower such a great thing for your average American citizen? Your average person wants what we all want; good jobs, the ability to afford a place to live, buy food, clothes, entertainment, and the occasional vacation, a healthy environment, and good education for our children.

As I said, I’m not an economist, but maybe our economy needs to contract somewhat. Instead of paying for power on the world markets, we should each just be paying to live our own lives. If the dollar wasn’t worshipped but was instead a regional currency, we might actually be able to use it to run our own economy rather than the world’s. We might actually start to manufacture goods in America again.

And for those who still want to play in the financial markets, Wall Street would still be there. It would just follow the Asian and European markets rather than lead them.

Getting back to the immediate financial crisis, what should we do at this point? Despite all I wrote above, doing nothing won’t produce the rosy localized economy I just outlined. Defeating the bailout and doing nothing else will lead to a worsening situation for all of us. And as Paulson warned, it will lead to massive layoffs and many people losing their homes.

But a bailout that just maintains the status quo for as long as possible is also a losing proposition. The economy needs a healthy contraction. We need to worry about local needs first. But a contraction isn’t the same thing as a collapse.

As I wrote at the beginning of this post, I’m not an economist. But there are many thousands of them in Washington and around the country. There are many of them advising congress. Surely they can come up with a plan that allows for a quasi-bailout, something that will allow the credit markets to continue operating for now but include a plan to change the basis of our economy from worldwide credit to American profits and savings. Surely they can come up with a plan to downsize without collapsing. The trick is to approach creating a plan not as a way to sustain the current economic structure but rather to wean it from its excesses.

Some will instinctively feel that this is wrong. There is a popular notion among Americans that we are “the greatest nation in the world” and drastically reducing our influence on the world economic stage will likely seem to them as a loss of prestige and a loss of face.

America is a great country in many ways. But its primary responsibility is to its average working citizens, not speculators on Wall Street. And in my opinion, a country that provides financial safety and security for its citizens, rather than wielding economic might in the Asian and European markets, is a country worthy of tremendous pride.

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