Saturday, December 27, 2008

Our Ponzi world

I read David Seaton's blog every so often. He is an expatriate, living in Spain, who writes about once a day, and he certainly has an interesting view of the United States from his vantage point across the sea. In a post he wrote on Monday, he steps well back from the immediate crisis, and comments on something that I have contended - that, even after we get through the current situation, we are likely to be poorer, with fewer options, than we had before.

He quotes a Spanish friend who contends:
At the bottom of it, he said, was the enormous increase in productivity brought on by information technologies. We simply produce much more than we can possibly consume: we need lots of consumers and much fewer workers.

How are underemployed people supposed to buy anything? On credit. Something has to give, has given. I think he's right.
Science fiction anticipated this situation, as there have been any number of books that describe a world in which robots and computers take up much of the work that humans used to do. The normal arc of the story is that we live in a seeming utopia, where population density is low and humans are free to pursue various pleasures. Then, of course, something happens to shake up the status quo, and the once-happy humans confront the essential emptiness of their lives. Rarely, however, do these stories ever discuss how we actually made that transition to the utopia in the first place.

Seaton continues:
With lower costs and more technology, profits rise and much of this gain is reinvested in more productivity-raising technology, which makes more skills and the people who have them redundant. This means, perversely, that more profits usually lead to less jobs or much poorer jobs. This paradigm, which until recently only held true for the poorly educated, is now reaching the ranks of university graduates. Now, with digital technology, even high intellectual output tasks can be outsourced to where people with postgraduate degrees can be hired for the same cost per hour as high school graduates in a developed country.

Result: As more money is invested in raising productivity, fewer and fewer people can produce more and more for a market glutted with products that fewer and fewer people can afford to buy without going into debt.

Salaries don't rise because most workers are not really needed that badly and are easy to replace if they go on strike, complain or even report in sick.. and thus they have no bargaining power.
And this is what we're beginning to see. Some Americans, those who control the capital or those ever-fewer who are involved in the productivity-enhancing activities, continue to do just fine, but it's hard to see how the system is working for the greater number of people.

More from Seaton:
[A] future with poorer paying jobs, less horizon, more need of credit to participate, with less chance of ever paying back the debts incurred.

To make underpaid workers buy things that objectively they don't need, an entire industry (marketing) exists to make them dissatisfied with what they already have. Perversely, unhappiness becomes a social good in such an economic arrangement. A thrifty person, content with his lot, who for thousands of years was seen, in all traditions, as a wise and sensible man; in this contemporary situation is seen as a public enemy to be "stimulated".

In a sense our entire "civilization" is sort of a universal "Ponzi scheme". If the wheel stops even for a moment it all comes tumbling down.
I actually tend to be less pessimistic than Seaton in the normal course of things. That is, perhaps, because I find it hard to buy into the "big-collapse" theory (I've always felt that James Howard Kunstler, whom I admire greatly, overstates a similar case, in that it's hard to turn the aircraft carrier as quickly as his predictions for our decline would imply).

However, it's also difficult for me not to concede that the facts as they are today seem to fit with Seaton's conclusions. We do have economists who question why the overall economy is not growing at the rate that their productivity numbers would indicate. It does seem bizarre that, debt clearly being one of the proximate causes of our current woes, we are being told that it's vital to go out and spend like drunken sailors. I would like to think that there's some kind of balance wheel that swings into action to counter the "tumbling," but I'm not sure what that mechanism is.

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