The Postcatastrophe Economy
Macroeconomic sage Eric Janszen makes a case that the same forces that caused the last economic crash will cause the next one too.
In his first novel, Ernest Hemingway describes the eternally inebriated Mike Campbell as having gone broke in two ways: “gradually and then suddenly.” With a government that followed its unwitting citizenry into a mire of debt (or perhaps it is the other way around), the same tale may very well be told of the United States. Though the dolorous realities of modern American life have suddenly become very clear, it feels like something we should have known all along. On the whole, the US has an outstanding public debt approaching 100 percent of its annual GDP; and 43 percent of families now spend more than they make with an average credit card balance of $8,000 per household.Skip to next paragraph
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In The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble, venture capitalist and macroeconomic sage Eric Janszen reckons it is a usurious economic structure dominated by finance, insurance, and real estate (FIRE) that caused the last crash and will cause the next one too – as soon as oil prices see their next spike.
The FIRE economy’s origins can partly be traced back to the 1950s consumer boom, when postwar generations shook off Depression-era fiscal inhibitions to purchase cars, televisions, and refrigerators. Also salient is the rise of European and Asian export competition in the 1960s and 1970s, which instilled a necessity for finance to account for America’s first trade deficits and which also spurred the abandonment of the gold standard. Janszen mentions these preconditions, but for his purposes the FIRE economy was effectively sowed in 1983, when then-Fed chairman Paul Volcker cranked interest rates seven points above the rate of inflation so as to manufacture a recession and end the rising 1970s wage-price spiral.
This heady (depending on where one stood) period saw unemployment reach double-digits as waves of investors fled from traditionally safe assets to higher-yield financial products. From then on, the Chicago School would dictate the terms, which included embracing the neoliberal axioms that markets are wholly efficient, asset inflation can substitute for savings, and high wages lead dangerously to further monetary inflation. Neither the American labor movement nor the productive economy would ever fully recover.