The Real Reason for the Current Crisis

 I heard a man on the radio the other day. He said some very scary things. I am truly frightened for my country. Dr. Ravi Batra is a professor of economics at Southern Methodist University and best-selling author. If you want to have nightmares, read some of his stuff. I'll try to make a brief summary of his ideas.

Basic Econ: Economies run on supply and demand. Supply is driven by production and demand is driven by wages. During normal cycles, as productivity goes up, so do wages, thus keeping up demand for the increased production. It wobbles a bit, but it's simple and it works. It worked up through the late '70's.

Then, real wages stagnated while production kept going up. This was because Reagan's deregulation and union busting had a depressing effect on wages (That's a whole other rant). Since someone “needed” to buy the excess production to keep things running, rules on credit were relaxed. The advice of our grandparents to pay cash for everything was ignored and Americans gorged themselves on debt financed lifestyles. Many households needed a second income in order to maintain the standard of living they had become used to. When the credit cards got maxed out, the bankers started giving out what used to be called second mortgages, now known as home-equity lines of credit, and making loans to anyone with a pulse. The borrowing wasn't limited to individuals, businesses and governments borrowed heavily as well (35-1 leverage positions in derivative markets, anyone?).

The American economy has been using debt to fuel its expansion for thirty years while good jobs went offshore in search of cheap labor and were replaced by lower paying service-sector jobs. Here is what made outsourcing a smart move for corporations: it used to be that if it cost $1.00 to make something here and it only cost $0.20 to make it somewhere else, there was an appropriate tariff to bring the price up so the domestic company stood a chance of keeping the market share and staying in business. Tariffs and other restrictive trade policies helped keep the playing field level so that a guy who made $15.00 an hour to run a machine tool in Detroit could fairly compete with another guy running the same machine tool in Juarez who gets paid $1.50 an hour (a big part of wage disparity can be linked to associated infrastructure costs: it simply costs more to live in Detroit than in Juarez). So-called “free trade” agreements simply made tariffs disappear and tilted the playing field hard toward lower cost, offshore workers, causing a vicious circle of lowering wages and shipping jobs overseas.

I believe the American Dream is dead. We used to be proud of our ability to increase productivity and rewarded our workers accordingly. Someone with a high school diploma could get a decent job, support a family and maybe send their kids to college. We had the most leisure time of any country in the industrialized world. Now, Americans work more hours than anyone. Now, if production rises, instead of a raise, you might just get to keep your job.

The reasons behind this might be seen as greed gone mad, but that's not (entirely) the case. If you look at some of the writings of the early “neo-cons,” there is a theme that a comfortable middle-class is a danger to good social order. If people aren't afraid of losing their job for taking a day off to go to a protest, they will. If people aren't afraid of losing their homes, cars and a chance to send their kids to college they might pay closer attention to what's going on at the macro scale. The American worker is so distracted and baffled at why it's so damned hard to pay the bills, they have no energy to spare to give particaptory democracy the time and attention it needs to florish.

The combined effects of these policies are now coming home to roost. When the housing bubble popped, the breeze was more like a hurricane through the economy. It's still blowing and as the storm told the palm tree 'hold on to your nuts, this is gonna be one hell of a blowjob.'

I've seen a lot post-apocalyptic fiction. There are myriad ways for a society to collapse: climate change, bio-hazard – man made or natural, asteroid impact, or even the old chestnuts atomic warfare and alien invasion. I'm more afraid of what the results of a failed America would do to the world.

Author's note: This is one of my first posts for Failurisms and I will occasionally come back and link to newer columns dealing with topics discussed here.