Last night, I heard something worrying. It was Gareth Morgan saying he can’t ‘see through’ this recession; that he can’t see the economic mechanism that will turn things around and get us growing again. He had already dismissed interest rate slashing and stimulus packages as ‘necessary but insufficent’. In the end he resorted to the ‘Hail Mary’ play of international economics: hoping the good old US consumer would start consuming evermore again and once again pull the rest of us out of recession by demanding more of our stuff.
I respect Gareth Morgan. Yes he’s a media whore and I don’t agree with everything he says but at least he’s not one of the neo-liberal dittoheads from the banks, Treasury, the Reserve Bank, and the ‘business sector’ who have been in charge and screwing things up for the last twenty years. Still, I think he’s got it wrong if he thinks a rebound in US consumer demand is going to come along to save us.
Fact is, the US consumer is the largest economic bubble out there. For 60 years, the US has sat at the heart of the world economic system. It’s currency has been the trading currency for oil and the the reserve currency of choice for other countries. Those two factors have contributed to the US dollar being hugely overvalued and interest rates in the US staying lower than they ought to for decades. On the back of this, Americans have been able to get indebted up to their eyeballs and beyond buying more and more from overseas and building up an enormous foreign debt. In return, exporters have had an artificially low currency relative to the US dollar and the billions they have made exporting consumer goods to the US have eventually found their way back to the US consumer as loans – mortgages or credit card debt.
Like any economic bubble, this is all predicated on everything continuing to go right forever. And, right now, things are going very wrong indeed. The odds are not for a US consumer-led recovery but a collapse in US consumption as personal credit dries up, breaking the bubble, sending the dollar crashing with the reverberations felt around the world. Some of the greatest financial minds in the world, led by the likes of Warren Buffet, have been warning that the US dollar bubble is unsustainable for years.
Sure the worst-case scenario may not, probably will not, play out but things have changed. We can not depend on a further inflation of the US consumer bubble to get us out of this mess. And if not that, then what?
It seems clear to me that the way out of this is a fundamental rebuilding of the global economy, the Green New Deal which UN Secretary-General Ban Ki Moon is just the latest leader to call for. It won’t be quick and it won’t be cheap but quick and cheap are the mantra of the neo-libs who have failed us. We are in a world where our economic institutions have hit a brick wall as a result of underlying resource constraints. The world cannot continue to supply us with evermore oil, food, fertiliser, water, and be a dump for our evermore of our waste and carbon emissons. We need to start building a global economy where we can become wealthier by using limited resources more effectively and cleverly rather than simply pouring ever greater quantities resources into the system and then dumping them out the other end. That will take leadership with the courage to put doing what is necessary ahead of political expendiency and with the vision for long-term planning. Unfortunately, that’s two things that the world’s leaders, and ours, sorely lack.