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The 14th Banker Headshot

Institutional Deeds, Personal Choices

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H/T Credit Writedowns for this piece addressing causation of our economic malaise. The gist is that the problem is neither the business cycle nor structural imbalances.  Quoting Harold Meyerson of the Washington Post:

This grim new reality has yet to inform our debate over how to come back from this mega-recession. Those who believe our downturn is cyclical argue that job-creating public spending can restore us to prosperity, while those who believe it's structural - that we have too many carpenters, say, and not enough nurses - believe that we should leave things be while American workers acquire new skills and enter different lines of work. But there's a third way to look at the recession: that it's institutional, that it's the consequence of the decisions by leading banks and corporations to stop investing in the job-creating enterprises that were the key to broadly shared prosperity.

While I agree with this premise, we need to share the blame a little more broadly. Large banks and corporations are filling a vacuum. Yes, they help create the forces that create the vacuum, but nevertheless it is our inability to govern ourselves politically, financially, or consumptively  that allows the collective to go down a path that in retrospect was foolish. We did more in an intentional fashion to build the export machines of Japan and Germany than we did to build our own. We allowed other nations to be more frugal and save and invest while we spent and borrowed. We allowed our education system to become mediocre for a country of our prosperity. We let the free market misallocate our resources while China had an industrial policy that has created a relative competitive advantage in manufacturing that will be very hard of us to rebalance. Let me come back to culpability.

CR digs deeper on changes in family income over the last 60 years. Basically we had 30 years of income growth that was across the spectrum of income levels. Then, for the last 30, we have had disproportionate income growth among the very wealthy and relative stagnancy among the vast majority.

Meyerson identifies the force majuere to be corporate America:

Our multinational companies still invest, of course - just not at home. A study by the Business Roundtable and the U.S. Council Foundation found that the share of the profits of U.S.-based multinationals that came from their foreign affiliates had increased from 17 percent in 1977 and 27 percent in 1994 to 48.6 percent in 2006. Making and selling their goods abroad, U.S. multinationals can slash their workforces and reduce their wages at home while retaining their revenue and increasing their profits. And that's exactly what they've done.

Yes, this is what they have done. And "they" are responsible. Yet, "they" are a reflection of us. "They" have filled the vacuum that we left for them. Granted, we stupidly did not know that this is what they would do.

So now we stand at a point in time. The headlines of the last few days have shown that our largest banks have a big interest in Facebook and Groupon. These are quick scores. They are to be sold to investors that are also looking for quick scores. The banks skim the fees and the investors look for a fast bounce and then get out before the next technological innovation, leaving the slow witted holding the bag while the company valuations eventually decline.

Are you powerless over this allocation of resources? No. These allocations of resources are based on anticipated revenue streams from the participation of the masses, the shrinking middle and growing underclasses in spending their time and resources reflexively on what these services promote. I am not saying they are all bad. They are a reflection of us. Our desire to communicate and affiliate is not a bad thing. But is our way of going about it the best way? Is a 'not bad' thing the same as a good thing?

What could you do intentionally to change your future? I have no ill-will for Groupon or its founders. But I promise you that if there is a net 20% decrease in subscribers, Wall Street will not allocate those resources that direction. If instead you buy a small solar panel, Wall Street will allocate resources in that direction.

Let's begin making conscious choices to make our future better.