I sometimes wonder if our ways of measuring the economy are completely out of touch with a new reality.
My intuition tells me that we're going through a singular time -- one that will change our lives profoundly in ways that aren't entirely clear yet (and may not be for some time). Will economic recovery really involve new housing starts, car purchases and retail sales at a level approaching that of the past 20 years? An explosion of new retail building -- more stores, more malls, more restaurants?
Should we measure economic success by a continual increase in consumer demand? And if we don't, what replaces it? How do companies set profit targets that aren't based on continual expansion?
I'm no economist and I don't pretend to have the answers. I do know my own discomfort with the ever expanding consumer culture has prompted me to find ways of doing more with less.
I can think of no better illustration than my own home. Almost 22 years ago, I bought an old house in a first-ring Midwest city suburb. I couldn't afford the kind of house I wanted, so I looked for the best available within my limited budget -- a "starter" home.
Ten years into home ownership, I got divorced. The starter home became a full-time divorce recovery project.
As my income increased, I moved from simple do-it-yourself projects to full-fledged home remodeling. Somewhere along the way, I realized my starter home could become the home of my dreams. Rather than sell and move up, I brought my home along with me.
As I look at the growing economic crisis and wonder where it will lead, I'm profoundly grateful I chose to fix up rather than trade up. My debts are minimal, I'm within walking distance of the library, grocery store, restaurants and bus line, and I've got a house that's increased in value, even during this downturn.
And in the process, I've turned an old house into the home I always wanted.
I don't have any answers, but can point you to another blog where the author considers "Should we measure economic success by a continual increase in consumer demand? And if we don't, what replaces it? How do companies set profit targets that aren't based on continual expansion?" all to be important questions. Well, on the last, I don't think he's really thought about it but if you brought it to his attention, he may well see its import. -- http://initforthegold.blogspot.com/
One component of the situation is that banks lend at a percent interest. If a company borrows a million at 5% interest, they have to grow enough to pay back an additional 50,000. If they borrow a billion, they have to pay back an additional 50 million. This is the heart of an exponential process. Exponential processes _cannot_ be extended indefinitely. Irrespective of honesty of the players, or good intentions, etc., anything that is growing exponentially and is reality based will always run in to some limit.
Banning the charging of interest would avoid the exponential problem, but would create a batch of others. Medieval Europe was able to experience the Rennaissance in part because it finally decided, contrary to Augustine, that it was ok for Christians to make loans at interest. (Conversely, it was because of that practice by Christians that Jews were the money lenders. Given the recurring mass murders of Jews, they couldn't become wealthy enough to fuel the Rennaissance.) Then again, maybe US economy is now sufficiently different from what has prevailed the previous 2000+ years that extremely different lending practices than are current would at last be usable.
Posted by: Robert Grumbine | 13 July 2009 at 11:23 AM