Recently, I heard someone say, "Education is not a solipsistic affair." I thought that was a pretty bold statement coming from a man who doesn't exist.

Ars Economica

I regret that I have not been writing about the economy. I don't mean over the last few weeks; I mean over the years. So, below is a brief recap of my economic views over the last decade. There's no way to prove that I actually had these ideas at the time; you just kind of have to take my word for it.

Late 90s
Situation:
The so-called "dot-com" boom fuels economic growth and a federal budget surplus.

Analysis:
GDP growth is a result of increased productivity through the application of new technology (B2B). Productivity gains will plateau causing growth to slow.

Proposal:
Encourage investment in alternative energy (long term) and green technologies (short term) which will create new technologies and productivity growth. (I used to call this idea "Sustainable Growth"™ an homage to the concept of "sustainable development.")

What Actually Happened:
Irrational exuberance came to an end when overvalued stocks began to fall. Consolidation in telecommunications failed to live up to the hype.

Early Aughts
Situation:
Recession. George W. Bush takes office with a federal budget surplus.

Analysis:
Economic growth is increasingly tied to consumption. The end of the "dot-com" boom causes job losses in technology and service industries. Overall consumer spending is compromised.

Proposal:
Use federal money to invest in national infrastructure. Repair roads, bridges, build schools. (And high speed rail?!) Creates short term (5-10 year) boom in construction while addressing long term infrastructure needs. Creates jobs which prop up consumption. (This is basically the opposite of trickle down economics. Give money to those who spend the largest percentage of their income in order to create growth. Yeah, I'm a socialist.)

What Actually Happened:
Massive tax cuts that make the income tax less progressive. Deficits. 9/11. Federal bailout for airline industry. War in Afghanistan.

Mid Aughts
Situation:
Consumer spending and tax revenue as a percentage of GDP rebound. Recession ends. War with Iraq. Deficits increase.
I was wearing an onion on my belt, which was the style at the time.

Analysis:
Decline in the value of the dollar decreases trade deficit. Consumer spending is propped up by housing prices as consumers use their homes as ATM machines. A housing glut will cause home prices to fall and consumer spending will be significantly impacted.

Proposal:
Um... well, I can't really tell developers to stop building homes no one needs and condos that are going to be half empty when completed. Also, it looks like we're stuck with a budget deficit and a costly war. All I can suggest is try to grow out of the deficit. See: Proposal for Late 90s.

Today
Situation:
Fucked.

Analysis:
It may be much worse than I thought.
Our economy has, for some time, run on consumption. Consumption has run on borrowed money. If nobody can borrow money anymore, we're screwed. The bailout may not even work. At this point there may be so much money in worthless investments that even buying mortgage backed securities at $0.80 on the dollar may not provide enough capital to save the banking industry. What I can't tell is if the banks that seem to have enough capital to snatch up the ruins of Wachovia, Washington Mutual, et.al. are strong enough to survive. If they are, then we'll experience a temporary credit freeze and recession, but we'll live to borrow another day. If they aren't and $700 billion isn't enough to save them, the government might not be able to borrow enough money to compensate. That's when we're toast.

Proposal:
End the war. Give up the empire. Cut defense spending by at least 50%. Even if we make it through this crisis, we're on an unsustainable path. Cross your fingers, toes, etc. and pray to your lord and savior Adam Smith.