Innovation and Redistribution Are The Keys to Surviving "The Great Compression"
Dr Mark Naison
The United States and the World Economy is entering a phase which could aptly be called "The Great Compression." For the forseeble future, most people will be experiencing declining incomes, declining job prospects, declining home values, and if they are lucky enough to have them, declining stock fortfolios and retirement accounts. With the world banking system crippled, and requiring dramatic infusions of funds from governments to prevent complete collapse, there is no chance of credit markets being unleashed to support a new wave of economic growth any time soon.. What we are likely to see, and that is only if government remain agressively interventionist, is a reconfiguration and redistribution of economic resources so that most people have access to food, clothing, shelter and medical care even while their assets and incomes shrink. It is such government action, and that alone, which can preventing this crisis from turrning into another Great Depression, where hundreds of millions of people around the globe expereinced sudden and dramatic impoverishment and where the resulting unrest destablized many governments and ultimately helped trigger World War II.
In this very dangerous period we are entering, ordinary citizens must become coldly realistic about their economic prospects as well as very clear about what demands they should be making upon governments and major employers.
One of the things we have to do is rethink how we allocate space. Right now, there is a glut of residential space among middle and upper class Americans even while there is a shortage of such space among working class Americans and the poor. Not only do wealthy Americans have second and third homes which remain vacant much of the year, but many middle class Americans are living in houses far too big for their needs, with rooms that are vacant or used for strictly recreational purposes. Given such unused space, it is unrealistic to think that in a time of declning incomes there will be a revival of the market for residential construction. Empty residential space will have to be reconfigured and redeployed before a demand for new space will emerge, as children move in with their parents, senior citizens move in with their children, or large private homes are divided ( legally or informally) into multiple family cooperatives. As for vacant or near vacant luxury high rises, community organizations and local governments should push for their convesion into affordable housing. New residential construction should not take place until we make better use of the
empty space we have, and quite frankly capital starved banks will be reluctant to fund such construction when the demand for it is so weak.
The same redistributionist ethic should be applied to commercial real estate. As the debt fueled consumer economy shrinks, huge numbers of stores, auto dealers and shopping malls will become vacant. Until those spaces are converted to other uses, be it for arts programs, youth programs, or new businesses targeted to a radically transformed marketplace, there will be little or no demand for private commercial construction. For a very long time, virtually all new construction projects will have to be initiated and funded by governments through deficit spending.
With privately funded residential and commercial construction likely to remain at a near standstill for some time, businesses, non profits and government agencies should move into survival mode and keep as many people employed as possible. Laying off people should be the strategy of last resort. Before that
happens, businesses, and even hospitals and universities,should radically reduce the salaries and compensation packages of their top executives and managers, and employ wage freezes and unpaid work
furloughs for lower paid employees to keep as many of those people on payroll
As for people with skill, capital and ideas, especially young people coming out of school, they should createnew businesses, and cooperative enterprises, that provide services people need, even in hard times, or deploy new technologies in fields ranging from communications, to clean energy, to urban agriculture. There are tremendous opportunities for innovative entrepreneurship, even in this Compressed economy, for those who are willing to accept modest enonomic rewards rather than the prospect of instant wealth.
The world ruled by the hope, and in some cases the actual prospect of endless consumption and personal luxury, is disappearing rapidly. A new world looms for those willing to define success by different rewards. Whether we can make a transition to this new world without producing massive violence, hardship and unrest
depends on our collective ingenuity, flexibility, and ability to redistribute space and, income more equitably than we. have for the last 40 years. The sooner people recognize how much the economic climate has changed, and how they have to change as well, the better we all will be
February 27, 2009