Economic Wishful Thinking

As the recession grinds on, more and more of the nation’s means of production — its workers, its factories, its retail outlets, its freight lines, its bank lending, even its new inventions — are being mothballed. This idled capacity, like baseball players after a winter off, takes time to bring back into robust use. So even if the recession miraculously ended tomorrow, economists estimate that at least three years would pass before full employment returned and output rose enough for the economy to operate at full throttle.

This reporting in the NYT really is economic 'wishful-thinking.' How can we conceivably return to the kind of economy we had in the recent housing-bubble of the past 5 years, or the dot-com bubble before that? Are we finally going to attempt to move into some kind of non-bubble economy, or are we fated to just have one bubble after another, followed by collapse? But the reason we have to have economic bubbles is that a non-bubble US economy wouldn't support full-employment or the kind of affluence we have experienced over the last two decades, and we haven't yet accepted that reality as a nation.

All of this wishful thinking is predicated on increasing debt levels which are simply not sustainable for very much longer. Not only that, but the looming oil shortage and the corresponding price increases (which we tasted last summer) are going to really throw us for a loop. When I read statements like that above, I realize how out-of-touch our economic conventional wisdom really is.

If our government, the economic powers that be, and the public refuse to adjust to realities (meaning a considerably smaller economy and lower standard of living), then our desperate efforts to return to 'normal' will only cause much greater economic suffering in the years to come.

It is like an addict that refuses to acknowledge their addiction and continues abusing until they collapse. We can continue to snort or we can go to AA. I think I know what we're going to do, and it ain't AA. We just don't have that much self-discipline as a people.

To conclude, one more quote from an addict:

We have rarely been in this deep a hole,” said Nigel Gault, chief domestic economist for IHS Global Insight. “Eventually, once this recession is over, we will fill up capacity,” Mr. Gault said. “Not only that, capacity itself will inevitably expand as the labor force grows and innovation kicks in.