10 ways the new economy will look different
From the rise of the tightwad to the decline of the Sun Belt, American values and industries will be reinvented as the nation comes out of the worst recession since the 1930s.
On Sept. 18, 1873, weakened by investments in the ill-conceived Northern Pacific Railway, the big Philadelphia banking firm Jay Cooke & Co. went bankrupt. A national economic crisis followed – one with eerie parallels to the grinding recession of today.Skip to next paragraph
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Cooke & Co. was the Bear Stearns of its time, a pillar of national finance. If it could fail, anyone could, and the US stock market collapsed that awful autumn. The price of real estate, railroads, and other hard assets crashed, too. Banks fell like wheat before a reaper. Deprived of credit, Main Street commerce suffered. Unemployment reached 25 percent in big cities. The Panic of 1873 eventually led to 18,000 business bankruptcies. National production shrank for six years. Yet a new and stronger US economy emerged from the wreckage.
The builders of railroads and canals had gone bust, but they left a transportation infrastructure that in time bound regions together. Commodities – kerosene from Eastern coal, wheat from Western fields, canned fruit from Southern orchards – flowed down this web to the great ports of the US seaboard. Ton by ton, America remade itself into an export powerhouse, the China of the day.
The point here may be a simple one: This will end. When it does, things will be different. It's possible the US economy will be transformed.
Right now that's hard to see. A downturn that some people call the Great Recession shows little sign of breaking. Millions of Americans remain out of work. Trillions of dollars of household wealth has vaporized in the slump of stock and home prices.
But it's not Panglossian to predict that today's fear will break, eventually, and rational economic exuberance will return. Consumers will spend again, particularly on things they think have value. Banks will lend again, perhaps with more care. Companies will expand again, though not until a recovery is well under way.
Warren Buffett – the Albus Dumbledore of capitalism – recently wrote in his annual letter to shareholders that the economy would be "in shambles" through 2009, and perhaps beyond. Less noticed was his reminder that in the 20th century alone the US survived great wars, a dozen or so panics and recessions, the Great Depression of the 1930s, and the Great Inflation of the 1980s, when interest rates topped 20 percent.
In the face of those obstacles, and many others, the real standard of living for Americans improved nearly seven-fold during the 1900s, according to Mr. Buffett. "Though the path has not been smooth, our economic system has worked extraordinarily well over time," he wrote. "It has unleashed human potential as no other system has, and it will continue to do so."
1 VALUE AS THE NEW VIRTUE