Apocalypse Now?

In a recent conversation with a woman who has proven herself an astute investor with an insightful view of economic trends, she outlined her expectation of worldwide economic Armageddon within months and Mad Max style violence and anarchy in the United States within a year. The reality is that not even Nobel winning economists have a clear idea of how the current economic crisis will unfold. Everything is speculation at this point.

Back in 1980, Ronald Reagan started the neo-liberal revolution of big debt, deregulation and plentiful consumer credit. Sadly, Margaret Thatcher emulated his policies and much of the rest of the world followed suit, even though Reaganomics was more of a political ideology with no real basis in economic theory. Today the US national debt is nearing 100% of GDP, personal bankruptcies are at an all time high and there is genuine fear of a 1930's style depression. We can only hope that people wake up to what has been going on and start demanding more responsible governance of the economy. Countries cannot live inevitably running budget and balance of payments deficits, anymore than a person can live perpetually on credit cards. Politicians know this, but are loathe to tell the voting public that they are going to have to live within their means. That big screen high definition television will have to wait, Bubba, even if the line of credit your bank gave you will cover it.

The Reagan Revolution actually resulted in a massive transfer of wealth from the middle class public to corporations and wealthy individuals. Over the past few decades, corporate earning have risen spectacularly and the wealthy have become the super wealthy while middle class incomes have stagnated at late '70's levels. In fact, people are working longer hours to earn the same income, making this the first generation of North Americans in the last couple of centuries that is worse off than their parents. There is an accomplishment for the neo-cons to trumpet.

The need is for a paradigm shift, away from the often stated but dubious belief that the market always knows best, government should be minimized and that enriching corporations and the wealthy will eventually benefit everyone else. Change the primary statistical measures of economic progress from GDP growth and corporate profits to increase in the average household income and decline in income disparity. Politicians forget that the economy is not an abstract idea, it is made up of people. The wealthy suggest that their taxes should be low because they are highly productive individuals and should be encouraged to invest and spend. The problem with this concept is that, no matter how many new Mercedes they buy, the rich are an inconsequentially small segment of the economy. The overwhelming majority of economic activity is generated by middle-class and working-class house holds buying groceries, paying bills and going about their daily business. Any economic policy that is not directed at the broad middle-class is doomed to fail.