We should have seen the boom couldn't last

December 07, 2008|By DAN RODRICKS | DAN RODRICKS,dan.rodricks@baltsun.com

I e-mailed a guy I know and received the following "out of office" reply: "On October 30, 2008 Verizon tapped me on the shoulder with the Reduction In Force package. Hence, I am no longer in the office. If you need to contact me you have my number. It has been a pleasure working with you. Maybe our paths will cross again!"

I guess I'll have to call the guy on his cell phone, assuming he still has one.

Next night, I bumped into another guy I hadn't seen in a while. We talked about our kids for a minute, and then he said he'd just lost his job. Company folded. He was sullen, as you might expect, looking more than a little worried at the age of 50-something and jobless.

Of course, I should not have been surprised to learn that two guys I know, well-established in the middle class, had lost their jobs. The Labor Department reported last week that the number of Americans collecting jobless benefits has hit a 26-year high.

In Maryland, the governor plans to furlough thousands of state workers to make up for huge revenue losses and a budget gap. Constellation Energy Group announced layoffs of 800 workers. My phone at The Baltimore Sun rings every day with calls from ex-offenders looking for work. They had a tough time finding jobs when the economy was relatively good; imagine how hard it is for them now.

Where is all this going?

We don't know. Even after the best and the brightest are assembled in the new Obama administration, we may not climb out of this mess for a long time.

I never saw how our consumer-dominated economy could last. I never saw how we could keep going on as a debtor nation without some huge, painful consequence.

Here's the kind of line from a news story (off Bloomberg.com) that always gives me pause: "AT&T Inc., DuPont Co. and Viacom Inc. plan to eliminate more than 15,000 jobs as consumer spending falters." There's that phrase again: consumer spending.

You know why I think Congress should extend $34 billion in loans to the Big Three automakers? They employ people who make something. They make cars and trucks and minivans. They could probably make better ones, and electric ones. But in that GM, Ford and Chrysler represent an shrinking part of the American economy that involves manufacturing - making something somebody somewhere wants - I think we should give it a boost.

But a stimulus package to spur more consumer spending? No thanks. How you can stimulate an economy that has essentially collapsed?

Look at us: We've become a nation that thrives when people spend money they don't have. This is completely upside down from the society baby boomers recall, when the economy was robust, when people made a decent wage and benefits from manufacturing jobs, and the only things they had to finance were their homes and cars.

Since then, workers have seen any growth in income offset by additional health care costs, by having to make retirement contributions once borne by their employers, by having to get big loans to put their kids through college. So, with those additional pressures, and with union membership dwindling and traditional manufacturing jobs transported overseas - all at the direction of corporations backed by government policy - the economy went through a seismic change.

And we ended up here - with a system based on the magic elixir of endless growth, new housing starts, higher and higher retail sales, and trillions in household debt. As it developed, we knew we could not sustain it. Personal bankruptcies rose nearly 34 percent in October.

Three years ago, we reached a milestone that should have given everyone the creeps - the nation's personal savings rate dipped into negative territory for the first time since the Great Depression. Consumers depleted their savings to buy cars they couldn't afford, houses they couldn't afford and furnishings, electronics and vacations they couldn't afford. The next year, the Commerce Department calculated the savings rate at negative 1 percent. Historians had not seen a negative savings rate for two consecutive years since 1932 and 1933.

That milestone was foremost among indicators of a cold fact - the incomes of the vast majority of Americans had stagnated or declined in real dollars for a couple of decades, and people made up for it by spending savings and going into debt. The system was headed for collapse.

Now Barack Obama has promised "change we can believe in." What he needs to help engineer is a new economy, creating new jobs and better wages in ways that make life on the planet sustainable. Talk about "greening" the economy needs to be more than talk. It needs to be the new reality.

John Campagna, a principal with Benchmark Asset Managers in Baltimore, sees that kind of socially responsible, future-thinking investment as the way out. "We need more income in the hands of the majority of Americans in order to sustain our economy, and reduce the need for credit," Campagna wrote in a paper he shared with me. "Our opportunity is to use the urgent need to rebuild our infrastructure, national energy system, and communities in a green, sustainable manner to provide jobs and income for everyone."

And this effort, he says, "will require a large workforce trained in green jobs and industry."

This is the complex and important business of the future. If Obama and Congress want to stimulate something, it should be a green economic agenda, starting yesterday.

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