Sunday, October 12, 2008

Fast Forward

Anybody who's heard George Santayana's aphorism is condemned to repeat it, but what good do historical parallels really do us right now?

We know there are uncanny similarities to the onset of the Great Depression: as in the late 1920s, credit has locked up, for all the reasons we pretty much understand. We know that a pyramid scheme ran out of bottom, only homes, not stocks, were the bubbled assets. We know that some people made fortunes from the scheme, and inequalities in income are now a disgrace and macro-economic problem: in the short term, not enough buying power is stored up in the middle-class, whose incomes have eroded; whose net worth has taken a hit with the stock market plunge. In the long run, if unemployment rises, there will be a further spiraling down of the consumption that prompts growth.

BUT WE KNOW other things, too. Why forget them, of all times, now?

We know that the speed of moving information and capital today is unimaginably faster than in the early 1930s.

We know that the barriers to entering new business are unimaginably lower: that about 60,000 new business were created every year in the 1950s, and a million a year are created these days.

We know that product development cycles, once a decade long, are now, in an age of shared networks for prototyping and component sourcing, months.

We know (as former HBR editor Joel Kurtzman notes) US productivity--constant dollars per worker--has grown from about $71,000 in 1998 to about $85,000 today; so the "all-in-price" for manufacturing in the US is, given the weakened dollar, starting to look like China's in many cases. (IKEA, for example, recently announced it would manufacture for the US market in the US, not China.)

We know that trillions in capital has been accumulated by Asian and Middle Eastern sovereign wealth funds, and that they have no ways to earn acceptable rates of return unless they invest here.

We know that, if we can keep up more or less current levels of employment, we can retard a new cycle of mortgage defaults, and thus allow the government, and the financial institutions it will own, to eventually redeem much of the paper it is acquiring at fire-sale prices.

We know that, since governments have studied the Great Depression, they will act to shore up banks and new lending. We know that most Western governments will be prepared to provide stimulus and new levels of coordination.

We know, then, that growth will not be hampered by an absence of capital, skill, or will; that the key is quickly coordinating the match of capital to the enterprises that can use capital productively; that we can quickly prompt the next cycle of growth.

We know that an Obama administration would have broad support for investments in health care, energy infrastructure, education, and roads, trains and bridges--thus stimulating the economy, and sustaining reasonably high levels of employment.

We know, in short, that even if we have another "depression," its half-life can be months, not years; that the same (astonishing) information networks that allowed not-sufficiently-regulated financial services corporations to get us into this mess over months, not years, will allow new investments to fund innovations in months, not years; but that we urgently need the US government to signal that it will not only be the partner-insurer of last resort, but the partner-investor of first resort.

OH, THERE IS something we don't know. It is, as George Packer reminds us, how many people plausibly terrified by this crisis, barely educated people, and thus anxious not only about unemployment, but unemployability--people fattened by fast-food, narcotized by junk television, incited against talking heads, hungry for a loyal father, unsettled by sexual teasing, consoled by healthy-minded religion, inspired by do-or-die sacrifice, suspicious of retaliating others, raging at "New York": people who think like 1930s mobs, but who also think "history" is for elitists--will be bringing their panicked prejudices, not their cool-headed interests, into the polling booth.