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Economic restructuring, or metaphorical colonoscopy?

Mon, Oct 11, 2010

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A story in this morning’s Denver Post caught my eye – and not because it was about another gloomy economist making another gloomy forecast.

Here’s the quote from Nobel Prize – winning gloommeister Michael Spence. Noting that the labor market is global but most worker aren’t, Spence said that “We’re underestimating the extent that to which we have a deeper structural problem. We have limited labor mobility. I don’t know if we’ll need a German-style restructuring of the labor markets with lower wage expectations.”

I’m not sure what a “German-style restructuring of the market” might actually entail, or who would actually do it, but it sounds about as appealing as a German-style colonoscopy.

The phenomenon Spence describes in economist-speak is familiar to anyone who has lost a job, to any small business owner who’s had to close his doors, and to any budding entrepreneur who can’t seem to launch his/her new business.

Our economy, once so resilient and vibrant, is less hospitable to both business and labor than at any time since the 1970’s.

We solved the problems of the seventies in three easy steps (easy in retrospect, that is!).

First, Bill Gates and Steve Jobs began a revolution in information technology that caught the rest of the world flat-footed. Secondly, Ronald Reagan restored confidence, cut taxes, and eased government regulation of business. And thirdly, women and minorities entered the professional workforce in unprecedented numbers, driving up family incomes and ensuring that the most able people, regardless of race or sex, would manage the businesses, nonprofits, and governmental entities that together weave the fabric of our prosperity.

So what are we going to do now? In 1980, no one could have imagined that the American model would create a booming capitalist economy in China, India, and much of Asia. No one imagined that the Soviet Union would split up, and that Russia would become an economic powerhouse. No one would have imagined that our success would spawn legions of imitators, who outwork, under price, and out – innovate America. No one would have imagined that our once – majestic economy would become dominated by silver-haired swindlers in bespoke suits playing dice with the world economy.

And no one imagined that, once the silver-haired scoundrels had broken the vessel of our prosperity, we couldn’t fix it.

Maybe we can’t. Maybe our economic model in irretrievably broken, no matter who we elect, no matter whether we raise taxes or lower them, no matter whether we balance the budget or run trillion-dollar deficits.

Think about what we make – or, more precisely, what we don’t make.

We’re a nation of middlemen, trying to make a buck through arbitrage. If we sell sunglasses, we don’t make them – we import them from China. And most likely we don’t design them – we contract that out to design firms in China or India.

Arbitrageurs and middlemen are the froth of a national economy, not its basis. They thrive in good times, and wilt in bad times.

So maybe Spence is right. We’ll have downshift our expectations, abandon our national illusions, and submit to a metaphorical colonoscopy.

For starters, we might look back at 1980, and see what hasn’t changed. Let’s see: the Middle East is still tumultuous, ungovernable, corrupt, and troublesome, just as it was when Reagan came into office and extracted American hostages from Iran. And what did Reagan do thereafter? He stayed away from that particular hornet’s nest.

Reagan’s first lesson: fix your own problems first.

Reagan’s second lesson: deal with things as they are, not things as they were.

Reagan’s third lesson: America is still an amazing country, however damaged and broken it may be, and however long it may take us to rebuild our economy.

So let’s get to work.

And given that there appear to be no Reagans on the November ballot, I’ve resolved to vote for builders, not blamers; for competitors, not complainers; and for wisdom, not rhetoric.

And who might these paragons of virtue be? Actually, I’m still looking for one or two…

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