Every day the news gets worse and the realization sinks in. There is no turning back.
US economy shrinks stunning 6.2 percent
US jobless claims hit highest level since 1982
I'm glad that President Obama is projecting optimism and leadership in mitigating the worst effects of this collapse. And I'm pleased that Democrats are focusing on at least some innovative ideas for building a new economy out of the ashes of this disaster.
But I'm afraid that blind hope and fantasies of "recovery" have their limits. At some point, we have to face the fact that there is no getting back to where we once belonged: we will not "recover" the economic conditions that prevailed for most of the past few decades, not soon, not ever.
We are facing not just a Recession or Depression, but a transformational moment in global economic history. Call it the End of the Post-Industrial Era.
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Harvard Sociologist Daniel Bell coined the term "Post-Industrial Society" in 1973 to describe what he saw as the ongoing transformation of the U.S. economy away from industrial, manufacturing-based activity into a primarily service-based socio-economic structure. The model that he defined proved impressively prescient over the ensuing decades: the decline of the manufacturing sector, the global diffusion of capital, and the dominance of service-based employment all took hold with increasing force throughout the latter 20th Century, reinforced by the Information Revolution, which Bell could not have fully anticipated.
The shift to post-industrialism was just as profound for the world’s major economies, especially the United States, as was the transition from Agriculture to Industry in the late 19th century, although it did not occur quite as dramatically or painfully. We are now, however, evidently reaching the end of the shelf-life of the economic dynamics that underpinned and sustained the post-industrial model, and a new transformation is underway: one whose ultimate impact on our citizens, our workforce, and our society is yet to be determined. But the effects in the short run are already devastating.
The Precedent of the Great Depression
Many have discussed the parallels between the Great Depression of the 1930s and today’s economic trends, as well as policy prescriptions. And these parallels are legitimate, but they need to be understood accurately. The "second" industrial revolution had created a new rift in American society, in which new industries and economic sectors came to dominate (steel, textiles, construction), while older segments declined (farming, hunting). There had already been a number of shocks to the U.S. economy during the transition, particularly the Panic of 1907, and a major downturn in 1921 (as well as the disruptions of World War I).
These shifts also created a new class of super-wealthy investors, financiers, and entrepreneurs, along with an underclass of impoverished and exploited laborers who had no alternatives but to work in low-wage, abysmal factory jobs. For a long time, however, much of the Old Economy continued to function, in the form of family farms, local businesses, and rugged individuals of various kinds. By the mid-1920s, a huge bubble economy was rapidly expanding, on the basis of exploding speculation in stocks and real estate.
None of this was sustainable, however, because a vast proportion of the labor force was not able to enjoy these artificially inflated benefits. And when the great crash came, it was not simply a bursting of an overhyped stock market – which would have corrected itself in a short time – but the harsh, final throes of realignment in the "real" economy: the jobs, consumption, and investment of the bulk of society that had not yet joined the modern industrial era. Countless farmers, laborers, and immigrants lost everything, and suffered through a decade of poverty and hopelessness. This prolonged and painful transition consumed most of a generation. Ultimately, the New Deal helped reduce the suffering by providing jobs and reversing the economic contraction, while World War II accelerated the redeployment of labor and the expansion of industrial production. By the post-War period, the transition was essentially complete, but at a heavy cost for a lost generation.
Thus, the Great Depression represented, in effect, the final birth pangs of 20th Century industrialism. In hindsight, it could have been mitigated, but not prevented.
Post-Industrial Transition
The transition from the Industrial economy of the mid-20th century to the Bell’s Post-Industrial Society was rather more subtle by comparison. Industrial production and employment generally thrived from the post-War period through the 1970s, and advances in productivity, and new technologies and industries (air transport, motor vehicles, home appliances), helped sustain a long-term growth pattern. Not everyone benefited, of course, and a new underclass, based largely on race and region, persisted while relative prosperity spread to many new segments of the population. The other elephant in the room, however, was that virtually all of this industrial development was heavily dependent upon access to cheap sources of energy, principally coal and oil (which themselves were a major component of the industrial economy).
By the end of the 1970s, the shift was underway in earnest. The oil price shocks revealed the precariousness of the economy’s underpinnings, while a major side-effect of the global transportation sector was to vastly increase international competition for industrial production, such as automobiles and steel, and soon much else. But the flip side was that creeping globalization meant that factory production could be moved offshore to cheaper labor markets. The well documented decline in the U.S. industrial sector began, while a relatively thriving service sector grew up to fill much of the resulting employment gap, albeit at lower real wages, and with much displacement along the way.
The disruptive impacts of the transition to post-industrialism were thus not as dramatic as the Great Depression, and were felt mostly in the form of concentrated job losses and underemployment in the Rust Belt, together with more subtle changes in lifestyles, such as the predominance of two-income families and increasing spread of consumer debt.
Still, the post-industrial period, especially since the 1980s, has yielded its share of short-term prosperity for many, leading up to the illusory economic bubble that has now blown up in our faces. In particular, those firms and entrepreneurs that got into the service and retail oriented sectors early and aggressively, realized the same immense growth as the industrialists of a century earlier: from Microsoft and Intel and Hewlett-Packard, to Disney and Wal-Mart, to the global financial behemoths that funded and leveraged all of it, and turned capital markets into the world’s most massive Ponzi scheme. Along the way, there have again been intermittent shocks, including the early ‘80s recession which helped usher in the transition in a manner similar to 1907, and the dot-com boom and crash, which might be compared with the 1921 downturn as a portent of things soon to come.
As it turns out, Post-Industrialism has also proven to be an essentially unsustainable economic model. It could continue to thrive and grow only as long as our society was able to obtain its most basic needs – food, clothing, energy – from cheap outside sources in the developing world. While globalization and the outsourcing has been a natural, inevitable side effect of the service, retail, and information-based economy, they also have laid the groundwork for its collapse. It is now all too clear that the worldwide integration of financial markets is what led to the continuously inflating the bubble of real estate values, because real estate prices are ultimately based directly on the perceived "value" of an economy, and when that economy was artificially inflated, those prices (and all of the derivative financial instruments based on them) rose to false and precarious levels as well.
No Turning Back
The point of all this is: once one of these economic systems reaches, and then surpasses, the limits of its sustainable life span, it cannot "recover" back to its previous state. It may undergo a relatively smooth transition (post-1970s) or a major, calamitous disruption (1930s), but what comes next will NOT replicate what came before. And unfortunately we are now well beyond the point where a smooth transition is possible.
In the 1930s, the greatest impact of the industrialized transformation hit those who were not in a position to adapt: farmers and unskilled laborers. They were the ones who filled the tent cities and sank into abject poverty from previously decent livelihoods. In the 1980s, it was blue-collar factory workers, who had risen from "working class" to true middle class status, and fell back into a struggling, minimum wage existence at best. In the 2010s, however, the most vulnerable classes include not only or even primarily those at the bottom, but those who had risen to an even higher plateau: the middle and even upper middle class of white-collar, salaried employees.
These jobs are not coming back to anything like their pre-crash employment and income levels. Because the industries that provided them were themselves artificially fueled by the unsupportable speculation and inflated incomes and debts of consumers who were those same white-collar employees. The artificially high incomes and costly lifestyle choices of the 1990s and 2000s can’t be revived, not in the context of a return to Post-Industrial socio-economic relationships anyway: the cycle is over, the Ponzi scheme has collapsed.
Here are some of the key business sectors, and jobs, that will not be returning to their previous levels:
* Expensive, gas-guzzling vehicles: Nobody needs a BMW; nobody needs a monster SUV; and with gas prices inevitably going back up, fewer people could afford to drive them even if they could afford to buy them. The auto industry shake-out is permanent: the practice of trading in your "old" car for a new one every 3 years is history.
* High-end consumer toys: Say goodbye to Blu-Ray: who needs yet another upgrade/replacement of their video collection? Families on unemployment won’t be buying a lot of 52-inch flat screen TVs any more. iPhones and Netbooks will be scraping for customers for a long time to come. RIP, Circuit City and its employees.
* Overpriced "designer" fashions: The phenomena of $250 blue jeans and $300 sunglasses and even $50 t-shirts are already fading into obscurity, along with the endless mall boutique shops that sold them. Conspicuous fashion consumption, parading around in a $2,500 wardrobe used to be only for the nouveau riche and the Hollywood set, not the woman/man on the street. Thus it will become again.
* Cash-guzzling vacation hedonism: Why did real estate values shoot through the roof in Las Vegas? The same reason they’ve now crashed and burned: when millions of people had loose cash to spare and a gambler’s mentality, mega-casinos and resorts could print their own money. But that era of delusion is now over, and dragging down Florida, the Caribbean, ski resorts and theme parks along with it. Casinos will continue to operate, but more and more on the local level, where it doesn’t cost a couple grand for the privilege of losing a couple more grand.
* Bloated sports franchises: Anyone following sports has seen the impact already: lesser deals for multimillionaire superstars, franchises bleeding revenue and borrowing capital, worries about ticket and media and merchandise incomes. The only reason the A-Rods and LeBrons could command their ridiculous salaries was because the everything connected with being a sports fan could be ridiculously overpriced. Before long, most teams – those that survive bankruptcy – will be begging fans to come back to the park.
* Child-spoiling excess: The vast market for children’s merchandise, clothing, toys, and other goodies has also grown up with the explosion of consumer credit and artificial wealth. Never before in history has any society plowed so much money into overpriced throw-away items (most kids’ purchases have a lifespan of less than a year). With the return of the hand-me-down, specialized kids’ stores and brands and the limitless merchandising and marketing budgets attached to them will become a fairy tale.
* Old Media: Newspapers are in a coma. Broadcasting is gasping for breath. CDs are already dead, and DVDs may soon follow. Book publishers are tanking. Not all of these will be completely obliterated by electronic media, but the jobs that are being slashed today (see the latest Doonesbury) are likely gone for good.
There is an unfortunate illusion attached to the misleading concept of "stimulus", the idea that simply "priming the pump" and "freeing up credit" can jolt the economy back to levels of growth, income, and spending relatively similar to their bubble-inflated peaks. It’s good and important that the President’s plan provides money to invest in building bridges and roads, but laid-off white-collar workers aren’t going to get jobs building bridges. Most of the stimulus aims just to sustain consumers’ ability to spend, through unemployment and health care benefits, and aid to state governments and the like, but this money won’t be spent on non-essential luxuries. And a lot of those now unemployed are never going to get their old jobs, and incomes, back.
The key question is: how will all of these displaced workers survive the transition, and find new, meaningful ways to continue their now-defunct careers? And, what will their kids do for a living?