One out of six construction loans in trouble – still a sunny forecast?
Many of my colleagues have been recently wondering how the media regarding the American economy could be so sunny in the face of increasing unemployment. 
Indeed, how could any recovery happen having doubled the unemployment rate? The U-3 unemployment rate hovers around 9.7%, while underemployment is at a record 16.8%. How can an economy supposedly based on consumer spending come back with twice as many people unable to spend?
Americans have a strong bias toward good news. We are historically, as a people, motivated and entrepreneurial, so rather than dwell on things like history or future trends, we would prefer to get right back to work. This is an admirable trait in general. So long as you are focused on the right things, unthinking hard work is preferable to endless bureaucratic meetings in which you decide a suitable course of action, only after multiple hearings from all parties, et cetera.
There are moments where a sunny disposition is the wrong thing. To be sure, there’s no point in whipping people into a depression-related psychosis, causing a run on the banks and prodding people to fling themselves off bridges because the end is nigh. And economics is at the end of the day a social science; sometimes when people simply think positively, things turn around.
A new era?
Ron Paul says we can’t just create capital nor simply reinflate the bubble.
Is it the end of the Federal Reserve system?
A couple months old, but as we anxiously wait the ultra-scientific “stress tests” on banks, we need to consider whether banking as a system is at the end of an era.
Are you saving money? YOU COULD BE WRECKING THE ECONOMY!
Yesterday, the Washington Post Express featured a story with an original angle. According to the paper (not an editorial, reported as news) Americans anxious over economic turbulence are starting to save their money for a time without healthcare, food, and other luxuries. The bad news is, this may defeat the purpose of the stimulus bill, to get people to SPEND SPEND SPEND, thus Americans will be ironically wrecking the economy through their careless “saving.”
Let me get this straight: our growth-at-all-costs economy has hit a ditch after Americans began purchasing homes they couldn’t afford and running up massive debt. But the worst thing would be to slow down and reconsider our habits, and live within our means?
I can’t find the link to this story. That’s probably for the best.
Obama: Infrastructure the key to the future of competitiveness
President Elect Obama, along with America’s Mayors and governors say that massive infrastructure projects are the key to pulling us out of recession.
Incidentally, this was the subject of one of our first STEEP Reports around one year ago.
The whole set of ten STEEP Reports to be available soon…watch this space.
Business Week: The long-term future is the last refuge of a wrecked economy
For sometime I have been saying that we’re on the cusp of a wave of interest in the long-term future that is not driven by economic bubble or apocalypse per se. The normal cycle is that people are interested in the future when we’re inventing new technologies and profiting, or when we think we’re going to nuke each other. This time, perhaps for the first time, we’ve got a mix of both: technologies will likely be influential, the economy’s a mess, the world is largely peaceful, the climate is changing, etc. People are finally interested in the future not as a gimmick, but as the only way to wise management of public institutions.
Pretty cool.
The most recent edition of Business Week has a great example of this emerging mindset. Michael Porter, the intellectual godfather of competitive analysis, has written an article that is desperately needed today: “Why America Needs an Economic Strategy.”
You should read this in its entirety, but to sum up, Porter says that America has a lot of valuable assets, and no plan whatsoever for long-term prosperity. The United States has a great science and technology engine, the best technology transfer in the world, and a still-vibrant culture of entrepreneurialism. However, we are hobbled by our lacking social net, a mess of a public health system, decaying infrastructure, and creeping neo-mercantilism in the form of giant corporations that distort markets. The only way out is to think long-term, from small businesses up to national policy makers.
We couldn’t agree more! Too bad the economy had to be smashed into flints before we could notice it, but better late than never.
Iceland shows the hard reality of today’s economics
Clearly, the last few weeks have been complete turmoil for the world economic system. Practically everyone is revisiting their assumptions about economies, markets, even their own family’s budget. Still, in talking with executives, business owners, young people, and others, I get the sense that Americans haven’t quite yet comprehended the potential impact of these economic shocks.
Iceland, no longer has that luxury.
Today, the interest rate has been raised to 18% as a condition of an IMF cash infusion.
Polish guest workers, who for years have emigrated to Iceland for economic opportunities, are cashing out their remaining krona and heading home. I have heard that they fear the krona’s worthlessness to the point that many are running on the banks, taking cash, and attempting to buy automobiles that will at least hold their worth. (still looking for the link) To me, that’s a real wake up call, when your medium exchange is no longer trusted and people return to basic barter economies.
The economy, for many people, is this abstract interaction, a whirling dervish of numbers than only the mathematically-inclined financiers of London, Hong Kong, and New York can truly fathom.
Economics is actually a social contract between workers, companies, governments, and consumers. In the end, everything is a barter. I’ll work for twenty years, if you let me live in that house. I’ll work for two hours, if you let me buy that DVD. As a farmer, I’ll grow lots of corn, if you’ll give me bread, cars, housing, and education for my kids in return.
That’s the real system. And when you despoil it, you end up with 18% interest, 20% unemployment, etc.
I may be a futurist, but I was a Vermonter first. And there, the world starts with corn, cows, maple syrup and wood. Everything else is an abstraction that fits on top of that Bronze-Age infrastructure. When we forget that, we get real disruption in return.
It doesn’t have to be gloom and doom. But it doesn’t have to turn out OK, with our 401(k)s returning to “normal,” and our economies chugging along as we’ve become accustomed.
Just ask Iceland.
Early warning: credit card debt shows fundamentals of the economy changing
We speak often about the need for early warning when it comes to business intelligence. Usually, after something really bad has happened, leaders say “Oh, if only we had known sooner. Let’s get more interested in early warning.” This is also accompanied by observations like, “This was a failure of imagination” and “we’ve got to think out of the box.”
I submit that most times, people don’t want to see the most important changes. Such tectonic shifts mean that precious institutions (and assumptions) might be shaken to their foundations.
For example, have you ever seen this chart of American credit card debt?
It matches housing prices perfectly, matching real economic growth for twenty years, then skyrocketing after 2001.
But these together, and you can clearly see the fundamentals of the American economy changing in a radical fashion. Something about the largest economy in human history changed dramatically, and nobody really stopped to make a comment.
If we want a prosperous sane economy and functioning government institutions, leaders have got to get serious about the deep philosophical and analytical dialogues that need to accompany these kinds of changes.
The last thing we want is to watch an even bigger catastrophe than the past month, followed by the all-too-typical chorus of “we should be interested in early warning,” and “nobody could have seen it coming.”
You can see it coming as long as you are willing to watch what’s really happening.
It’s time.
Vive La France…Vive La France NUMERIQUE! (Long live digital France)
Hard times sure can spur innovative action. The current economic chaos could be complemented by some tight, disciplined, creative thinking.
France is in the same hot water as America when it comes to stagnant economic growth and teetering banks. Housing sits vacant or unsold, cars are stuck in the show rooms. While they haven’t had the spectacular fireworks of watching their governments purchase twelve failed banks, the average Frenchmen knows that the status quo won’t endure.
Today, president Nicolas Sarkozy unveiled a major step in the spirit of innovation, France’s digital economy 2012 plan. This program will offer the French people 150 ways to transition to a digital lifestyle and workstyle in the hopes of creating new markets, launching new companies, and ultimately spurring economic growth in a country of crippling social obligations and sub-2% GDP progress. In the next three years, we’ll see a major push toward converting to digital television signal, 100% penetration of broadband internet, the sale of analog TV frequencies to new users, and more.
I believe that Korea was at this level about three years ago, but never mind that. It’s an important move, one that will have dividends.
France has a funny approach to technology leapfrogging. Those who lived in France prior to the Internet remember a revolutionary device known as Minitel, run entirely by France Telecom’s Soviet-style business/politburo, that provided many of our favorite Internet services (stock trades, plane tickets, sports info, etc) as far back as the 1980s. It was way, way ahead of its time. Then, in true French style, the whole country celebrated this world beating progress by tucking in for a nine course meal, talking about how they got there before the Germans, going on strike, and doing nothing for around a decade while the Internet rendered it obsolete.
If you find this a grotesque caricature of French technology policy, have a look at their defense technology after 1918. Having finally beaten back the Prussians, they innovated all sorts of munitions, communications, and aerospace technology. In the 1920s and 1930s, France was a scientific and cultural hotbed, and everybody was pretty impressed with themselves, right up until the moment they discovered that the Panzer tank was even better technology. Historically, the French love to prove they are world class – look at their high-speed trains – but don’t necessarily want to trade their nine weeks of vacation for jittery paranoia in order to stay on top.
This is hard to argue with.
Socio-technological stereotypes aside, I take this as a pretty good sign that France will step up to the plate to compete on the world stage again. It’s right on schedule.
Strategic illusions and imminent disaster
James Pethokoukis at U.S. News and World Report believes that this $700 billion (come on, at least a trillion) bailout is much cheaper than the $30 trillion cost of not bailing out Wall Street and allowing the free market to function.
$30 trillion.
Let me ask – are we saying that our economy could possibly be upside down by multiple trillion dollars without us knowing it?
If that’s so, is this illusory wealth? What is real? What is a social construct? How can managers know anything? Why then do we have leadership, management, and regulation of any sort?
Man, I feel like these questions are necessary, but they sound like Albert Camus after nine glasses of Bordeaux.
Is our economy really that much of a post-modern construction?
It’s times like these that you really miss Peter Drucker.
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