The Long Depression Part 2

Years ago, I wrote an article called The Long Depression where I argued that instead of a bounce back from the 2008 crisis, we had never really recovered. If you say something like this on Twitter, 20 people will come out with charts and personal anecdotes as to why that is not the case. Unemployment is at historic lows, wages have started to grow coming out of the Pandemic, and median income is at the highest point in American history. Much of the increase in wages has come at the bottom of the market which gets into how people actually feel about the economy.

As in so many things, data only tells part of the story. The numbers can tell us that things are going along just fine but why aren’t people feeling this new wealth? Even before the Pandemic, when the economy was more healthy (in data terms) people were still feeling that the economy just wasn’t paying off for the average person. This is the great mystery of our time. It seems like the economy is doing well by the numbers but when you poll people or read their sentiment online, everyone seems to be grousing about the present economy.

Inflation, Deflation and You

Since the late 1970s, when Paul Volcker managed to break the price/wage inflation spiral that had plagued the economy since the end of Bretton Woods and a spike in energy prices, American’s enjoyed fairly low inflation, this was especially true after the 1980s and into the 1990s. Even in this century, inflation stayed at or below the Federal Reserve’s 2% target. However, the Pandemic changed everything and inflation spiked for the first time since the 1970s. The dollar made some interest moves as during the early part of the pandemic, as the economy was shutting down due to Covid, there was a brief period of deflation because so little money was moving through the economy (remember the coin shortage?). So in the last several years we’ve moved from normal inflation to deflation and then a big spike of inflation that has now begun to moderate. For American’s trying to manage their family expenses this has been a whip-shot. Despite rising wages, it seems like everything costs more. This has been especially true for the middle-class who has not enjoyed the wage gains of the upper class or the lowest working classes. The increased spending by the lower class has skewed the data to make it seem like people are in a better position than they are really in and that the economy is healthier than reality.

Standards of Living

America had a pretty good run when it came to standard of living. Since WWII, Americans have enjoyed an ever-rising standard of living year after year. Consumer goods increased in value and quality. People went from renting to owning homes and from owning one car to two or more cars. Houses got bigger too and our lifestyles increased. However, since the 2008 recession, this has been less true, especially for anyone under 45. This is why I’ve called this period The Long Depression. Standard of Living is falling for many. You have working people in California living out of their cars because they can’t afford housing. Homelessness has exploded almost nationwide, and the price of housing has gotten so out of control that there are people who likely will never own their own home and have had to accept that as a reality. No matter where people turn, the cost of simply existing, much less thriving, has simply gotten out of control. Millennials can’t afford to have children, Gen Z can’t afford housing and no politician is really addressing these problems in any meaningful way. It isn’t a mystery why folks under 45 are unhappy with the government and why Biden’s polling numbers are in the basement.

America has faced this once before, after WWII, there was a huge cost of living crisis following the war. Truman addressed the problem head on. After 4 years of war and price fixing by the government, prices adjusted wildly beginning in late 1945 and into 1946. There was hardly enough housing for the returning GIs and the government began to build public housing projects in order to house people. In fact, such projects went up around the world. In Europe, much of the housing had been bombed into oblivion and so new housing projects went up to house people. My point is that the cost of living crisis after the Second World War was solved not merely by the free market, which played a part, but by government intervention into the market place.

We built the suburbs and companies moved jobs out of cities for the cheap land as the American industrial base expanded to meet global demand. We will never have those exact conditions again but we are going through a manufacturing renaissance in this country. We do need massive amounts of housing, especially near urban centers where opportunity thrives, and we need to help real people. We proved during the pandemic that we could accomplish big things in this way but we still blanch when it comes to addressing the everyday expenses of people.

How to Get Out

We are left with one question, how do we get out of this long depression? The pathway is not an easy one. It’s not everyday we can destroy the world’s entire industrial capacity and then rebuild it with favorable demographics. Where does that leave us now? Rebuilding domestic industry is certainly a beginning of solving the problem and that is underway in a big way. Rebuilding supply chains from extraction through the entire value add chain to final product can employ people and keep money moving through the economy. These are all good things. However, there are structural things that can also be changed to improve things for everyday people too. We can get back to building large-scale housing projects to help people at the bottom of the income ladder and open up free-market properties for others. This will have an effect of lowering the cost of housing and making it possible for people to buy. We can raise the minimum wage and keep the wage gains above inflation (as they do in Australia and Denmark).

Transportation and walkable cities are a popular topic right now and we can invest in transit projects and provide other options for people other than owning a car. Investments in education will pay long-term dividends as well. The government could also return to setting prices on things like trucking, airline tickets, taxi fares and other essential items. Agricultural subsidies could stabilize food prices and increased resources into local food cooperatives could also create a cheaper and more resilient food structure.

Repealing the Trump and Bush-era tax cuts will help pay for this as well as raising taxes on those with incomes over $400,000 a year. Cutting defense spending is vital, as well as, increasing taxes on capital gains and investments. Ultimately, we need to end the 50 year experiment with neoliberal economics and return to a time when we, as a society, make decisions about how our country works.