In my writings on this blog, and comments on others', I've indicated that I'm a bit bearish about the current economic climate. It's not my intent to be cynical, just that a combination of history and objective viewing of current events leads me to conclude that we will not see robust economic recovery from this recession as we have in past cycles.
Successful entities, be they nations, corporations, or people, have some element, or a confluence of circumstances, that give them a competitive advantage. These success drivers may be raw materials, energy, labor, intelligence/intellectual capital, persistence, and may last for a long while, but are not immune to paradigm shifts. In the micro sense, a star athlete in his/her 20s possesses energy and labor, but will almost certainly (depending on the sport) not be able to sustain that success past their 40s. In the macro sense, nations founded on abundant raw materials and energy resources may find the going rough once those materials become scarce (point of diminishing returns).
Our nation began with practically unlimited natural resources - the better part of a continent, sparsely populated. We added to our success in the mid-19th century with the development of new energy sources, and later with the influx of motivated and intelligent labor. Steeled by the adversity of the Great Depression and the Dust Bowl, we returned to achieve the peak of 20th century global success.
But what now? Through conservation and innovation, we still have large quantities of [non-energy] resources, though bureaucratic inefficiencies (there's a redundant term) hamper much development of the resources. We're dependent on foreign sources for two-thirds of our transportation energy (even though we have proven reserves). Electricity production comes from domestic sources, of which natural gas is the most likely to increase output, but experiencing limitations during peak demand.
We still have talented people, but our intellectual capital base is declining, as educational standards decrease. Much of the work ethic of the mid-20th century is gone. It's said that goats roamed the streets of Riyadh, Saudi Arabia, in the early 70s as the city's trash collection system, since after two generations of oil wealth, no self-respecting Saudi would pick up trash. Later, garbage collection using foreign labor and U.S. compaction trucks replaced the goats.
U.S. debt, both public and private, is at record highs, while other nations' economies teeter on the brink of collapse. Manufacturing, once the backbone of the U.S. economy, has been outsourced. The U.S. runs a massive trade imbalance.
Gold once anchored the value of the dollar, but after the Nixon administration abandoned the Bretton Woods agreement in 1971, it drifted, partially replaced by the 'petro-dollar' standard in 1974, based on diplomatic negotiations that, due to the United States' pre-eminence in oil exploration, extraction, and refining technologies, maintained the dollar as the global medium of exchange for a few more decades. Now, because of weakening dollar value, the global community is looking elsewhere for a safe currency, and U.S. petrochem companies enjoy diminishing access to world petroleum supplies, of which nearly 80% are owned or controlled by foreign, often nationalized, interests.
After several prosperous years, the U.S. 'tech bubble' burst after the turn of the millennium. Pundits at the time wrote of the 'new economy', but business plans conceived on bar napkins, with blue-sky technology and zero deliverables were hardly the foundations of a thriving business climate. 9/11, coming on the heels of the tech bust, dealt another blow.
So where did the nation turn? To real estate - you know, they're not making any more of it, as the cliché goes. Homebuilding companies bought massive land tracts on speculation. At the same time, to inject liquidity into the market, Americans were urged to use existing home equities like ATMs (even Alan Greenspan apparently thought this was a good idea). Spending continued like there was no tomorrow.
Then came the housing bust. The banking bust. GM and Chrysler bailouts. And ObamaCare. So, with our collective economic engine badly in need of a major overhaul, what is our government doing?
Spending. Spending money we don't have. Spending on people who are not citizens (foreign aid, benefits for illegal aliens). Spending on programs that not only don't offer any return on investment, but which perpetuate and accelerate poverty and insolvency among large segments of business and society, mostly for the purpose of retaining power [votes]. And, no use ducking this one: Spending in Iraq and Afghanistan. Our SUV with the worn-out engine and luggage on the roof is now trying to tow an RV, boat, and motorcycle trailer. Up a mountain pass.
So again the question. From where will recovery come? This past week, Eric Schmidt, Executive Chairman of Google, in a post conference interview, essentially acknowledged that, a mere decade after the last one, another
tech bubble was reaching its peak.
Is the house of cards about to collapse? And what will we do when it does?
