Be courageous. I have seen many depressions in business. Always America has emerged from these stronger and more prosperous. Be brave as your fathers before you. Have faith! Go forward!
~Thomas A. Edison
There is a lot of talk right now about the long term financial future of the United States. It’s not hard to scan various message boards and see an abundance of posts declaring the demise of “the American Empire”. And it’s somewhat understandable. After 20+ years of prosperity and excess, our younger generations are just not use to any kind of hardship or loss of comfort. Decades of being told how great you are, how awesome it is to own the worthless shit you can’t even sell for rent now. Shop! Spend! Take advantage of America’s extremely generous credit policy. Buy a house you can’t pay the mortgage on, get a car you can’t make payments for. Run up a $5,000 credit card bill. Fuck it. Get it while the getting is good.
But how bad is it, really? From the get go, the Great Depression was brought up over and over again. American history is full of economic downturns. It’s a young country, many people don’t even remember the gas lines of the 70’s. Many others weren’t even alive then. Since the Great Depression there have been about 12 recessions in America. Many more before the Great depression, including a smaller but still debilitating depression following WW 1. That is America. Economic instability and terrible monetary judgment is part and parcel of a capitalist democracy. Mistakes were made on the road to becoming a super power but we got through them, and we learned from our mistakes. The balance of seeking just profit and greedily taking all that you can is a tough one for any company, any country. Still, America endures. We’ve been shot and left to die in a ditch more than once but, the American people are pretty fond of this place, and so are a whole lot of immigrants. The will to maintain America is why it is still here. Not because of a President or other politician(though they too had their part to play), but because of the combined will of the American people.
So let’s take a look at some of the factors fueling this dread in the fall of America. I got the idea for this while reading this article from U.S. News:http: //money.usnews.com/money/business-economy/articles/2010/02/02/the-future-of-the-us-economy-2050
The big one has to be the banks and the mortgage crisis. At some point people seemed to just accept that greedy assholes were intentionally short selling us. What completely flipped people out was giving them a trillion dollars. This was further exacerbated by their unwillingness to use that money for growth and the government’s unwillingness to press them on it. It’s great that President Obama is holding the American car companies to their debt, but the car companies don’t run the financial infrastructure. The banks do. When smaller banks began collapsing, people panicked. Fears of another depression were all over the news media. After all, bank failures were a big part of the depression. 50% of all the banks in America failed during the Great Depression. That’s right. Half the banks in this country were insolvent. At the height of the recent recession, .06% of all banks in America declared insolvency. Still, we threw a trillion dollars at them. Would the trend have dominoed to such a degree that larger institutions could no longer acquire capital? It seems unlikely. At the very least, we overpaid. Many of the companies the banks filtered this money to, to “save us”, have posted profits exponentially larger than before the recession. Meanwhile, economic growth is stagnant and unemployment hovers at 8.5%.
Speaking of which, the unemployment rate during the Depression was 25%. At least that was the posted number. Like this recession, the unemployment rate is most likely higher than the one posted. Many people simply give up looking for work during long downturns. After the 100th “no”, you just don’t wanna hear it anymore. Thank goodness for unemployment insurance though. In 1932, the state of Wisconsin adopted the first state unemployment insurance program. After the Social Security Act of 1935, all states were encouraged by the federal government to adopt an unemployment program. When a state can’t pay all it’s obligations to the unemployed, the federal government steps in and adds funds. This can lead to problems during an economic downturn since unemployment levels rise and states struggle to meet the commitment while still providing funds for basic services. Even though the federal government is a partner in the unemployment program, the state government’s run their individual programs. This can lead to a lot of problems when plans to address national unemployment collide with state proposals to do the same. each state is balancing their unemployment and other programs their own way. Even though all state governments are similar, they all address different problems relative to their state.
Spending during a downturn is another big way this recession is nothing like the Great Depression and, really, an oddity itself. During the Great Depression, “emergency spending programs” from the government budgeted out to account for 1.5%of the GDP for one year. The current recession was responded to with a program that nearly doubled the spending of the Depression, 2.5%, and called for it to stretch to two years. Now, 1.5 and 2.5 don’t sound like huge numbers but we’re talking about A LOT of money here. Trillions of dollars. But we can see this difference in the way states responded to the crisis. During the Depression states raised taxes and drastically cut spending. In this recession, many states opted to impose tax increases BUT this was supplemented by a massive federal loan. The state increases were rendered almost meaningless anyways by the further implementation of the Bush tax cuts. Sure, we MAY have saved some states from bankruptcy(the numbers only slightly leaned toward it and tax hikes coupled with reduced spending has worked before) but now we’re back to square one with the federal budget.
Our economy declined 3.3%. It’s not a good number but the Depression saw an overall 26% decline. A quarter of the economy was lost or rendered mostly unproductive. Even though the recession here was the worst since the Depression(though not the worst overall), other countries took a much bigger hit. That is one of the reasons we gotta stop worrying. But here’s some more.
China. OOOOOOO! Gonna get ya! Not likely. We feared the same from Japan in the 80’s. China has some big expenditures heading their way. By 2050, 31% of China’s population will be over the age of 60, compared to 25% here. We are far more equipped to handle our elderly than China as well. They will be spending a lot the next few decades just to catch up. Our elderly have more money too. More independent financial security. It’s tough to think of a country with over a billion people having problems supplying a capable workforce but they will. We have one of the highest birthrates in the world. Coupled with immigration we will always have fresh, young talent. And, as much as we are struggling right now, we are still better equipped than China to educate these people too. We are not stumbling or faltering. We just need to settle down for a minute and focus.
There is a lot of talk about America defaulting on it’s debts. It’s not a great thing to think about but it wouldn’t be the end of the world. We would recover. It’s not like people would stop loaning us money. Maybe at first, but they will come back. And imagine an America free of it’s debt. It may have to happen. To even think about stopping it we need higher taxes and spending reductions that actually matter and don’t take away from our ability to educate and help our poor. Either way, there will be lifestyle changes for many,many people. Most believe the government will enter into hyperinflation and use this to pay down the debt. Still a shitty deal for many. Higher prices and less purchasing power. It’s gonna be a hard road either way but we will get over it.
This, right now, is a moment in time. A snapshot in the American scrapbook. We are not the first to experience economic downturn, the fear of a “lost generation”, or the corruption of government. The Scott Walkers, Paul Ryans, and Sarah Palins of the world are nothing new. Just the continuation of a long line of political snobbery. This too will pass. Just as we struggled in the immediacy of the Industrial revolution, we will struggle at the dawn of a global society. Again, technology will lead the way. As the virtual world takes over, people will stop moving to jobs and just live where they want to live. The suburbs aren’t going to die, the big cities are still going to be the hubs of society. They will just have more reach than ever before. The rural and the urban will be intertwined like never before. A small town in West Virginia will be just as connected as New York City. These innovations will drive our economy. They always have. Every downturn is followed by progress. The goal is to stop falling back into repeatable mistakes. Not impossible but never easy.
I don’t see a dark future for America. We’ve come through too much to call it quits now. We are still the beacon of hope to the world. We are still the destination for millions of immigrants around the world. And it’s because of who we are. Industrious, hard working, and persistent. America has been written off many times and we always come roaring back. As long as we are free, as long as we are able to make our own destiny, America will survive. One day China and India may join us as world leaders but they will not surpass us. And, quite frankly, we could use the help.