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.
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.
Twenty-seven years later, Janszen cogently sums up the current economic situation: “For most Americans, the uneducated are doomed to a life of poverty, the educated to a mountain of debt. The FIRE economy does not give most Americans attractive options outside of debt serfdom.” This, of course, was not unforeseeable. Janszen clearly recognizes the central role that government played in aiding the rise of the FIRE economy, and thus its duty now to restore balance between actual producers and speculators. To salvage US global competitiveness, he calls for public policies that encourage private sector entrepreneurial innovation in transportation, energy independence, communication, and infrastructure (TECI). Given that all levels of the American infrastructure – from bridges to roads to water and energy delivery – have experienced severe antiquation in recent decades, this seems a prudent course.
In principle, Janszen’s TECI transition formulation may be fairly described as a syncretic free enterprise industrial policy, whereby certain independently competitive initiatives are encouraged and enhanced by the state on a level playing field, while those that would require public buttressing to make it on their own are left to fail. This tends to preclude a number of currently expanding energy sectors, such as wind, biomass, and electric cars, leading Janszen instead to embrace the latest in pebble bed nuclear reactor technology for power and clean diesel hybrids for transportation.
Much of “The Postcatastrophe Economy” forgoes a formal discussion of the political obstinacy and influence-peddling surge that the health-care reform and financial reform debates of the past year threw into stark relief. This is understandable; Janszen is an economic analyst and businessman, rightfully more concerned with the price of gold than with who throws fundraisers for Max Baucus. Nevertheless, if his TECI blueprint is to be a functional reality, it would be helpful if there were a mechanism or strategy to bypass or break down extant political barriers. The latest administration proposal for transportation sector repairs possibly funded through a new infrastructure bank is on mark, but now faces the ultimate test of making it through Congress.
Despite the disparity between where the US economy is heading and where the author would prefer to see it go – and political breakdown notwithstanding – Janszen’s book is a valuable addition to the public-policy front. It provides a serviceable framework for a more prudently managed capitalism, retaining the virtuous elements while reining in the teleological perversions Marx warned of over a century and a half ago. The author’s perspective as an entrepreneur who made his bones in the “real” economy provides a refreshing reprieve from the false Wall Street-Washington diptych of the media narrative. It is a book well deserving of ample consideration in the nation’s capital.
Stuart Whatley is a deputy managing blog editor at the Huffington Post.