Keynes and Hayek cutting heads, playing the dozens on their economic philosophies. Entertaining, and a fairly accurate breakdown of the Austrian school versus the resurgent Keynesianism which we are all experiencing.
That said, what if both these economic theories are dead and something new is on the horizon? Then this “battle” framework is distracting us from the hard work of original thinking.
The basic idea behind futures analysis is that 1) our whole society is connected in a system 2) trends act on the system 3) people 
act differently due to these changes. This is a more revolutionary concept that you would think; it is met with considerable skepticism. Our culture actively supports the notion that nothing is really systemic, because otherwise it would require complex thinking to understand it, and thus wouldn’t be easily salable to the masses. This is one explanation why our major media rarely approach topics from a systems perspective – they prefer an atomistic approach that prefers celebrities and disjointed headlines to connections.
Regardless, after twelve or so years of this work, I remain steadily convinced that the basic methodology of systems thinking is the way to go if you want to understand what’s next. Because – as stupidly simple as it sounds – people really do change in response to stimuli, as they always have. Take for example our new Asian-style savings rate in the United States – 6.9%, up from 0% in April of 2008. That’s not an incremental change in consumer behavior, it’s a complete revolution in a little more than a year. This is an example of reality outpacing fiction, for if you suggested that the American consumer would on average go from spending like a pack of feral teens on methamphetamine at the mall, mortgaging their children’s future for big screen TVs, to spending nothing and stuffing money in their mattress like a wary old shopkeeper in Hong Kong in just 14 months…well, you had better be pretty convincing to get people to buy it. How did people change so radically in such a short period of time?
Well, the answer couldn’t be simpler. All you need do is scare the bejeezus out of the Boomers, who are facing a structurally uncertain retirement, and BANG, people figure out quickly that your house may be a financial boondoggle, but people still love cold hard CASH. Unsurprisingly, savings accounts begin filling up in ways they haven’t since the World War II generation was at the height if its economic power.
The common myth in America had been such that the Greatest Generation saved cash for a rainy day for the same reasons they beat the Nazis – they were just fantastic, noble, foresighted, brilliant citizens living in a finer age. Of course, this is complete nonsense. The Generation born between 1915 and 1930 was just as venal, dishonest, credulous, and short-sighted as the next batch of humans. Why did they save money where we went nuts at the TV store? There were three main reasons. First, there wasn’t nearly the amount of liquid credit available in the national banking system. Second, many shops did not take credit. And most importantly, they lived through the Depression, when all national governance failed to stop Americans from starving. Basically, they didn’t believe, as many do today, that everything would turn out okay. They knew that complex systems often failed, and many of them literally lost their farms as a result.
Why did Americans start saving all of the sudden? Was it the spirits of their long dead ancestors returned to waggle their fingers in disgust until they were shamed into a 6.9% savings rate? I can’t rule that out, but more importantly credit dried up and people got scared to death. First, credit lines were tightened up, and then people figured out that bad stuff could definitely happen. In other words, two of the systemic requirements for a high national savings rate. The system changed, and then the people responded to the stimuli. Magic.
Question for the week – what are the key parts of your business’s system that could change, and what might it mean for you. If people can start saving 7% on a moment’s notice, they can change in other ways, too.
If you don’t read Jim Kunstler on a regular basis, you ought to. His book “The Long Emergency” predicts the end of peak oil and more importantly the end of suburban consumer life in America and around the world.
He sees a significant strategic shift – to put it mildly – in the coming years. His doubt about the stimulus package is caustic:
The attempt to restart “consumerism” will be equally disappointing. It was a manifestation of the short peak energy decades of history, and now that we’re past peak energy, it’s over. That seventy percent of the economy is over, especially the part that allowed people to buy stuff with no money. From now on people will have to buy stuff with money they earn and save, and they will be buying a lot less stuff. For a while, a lot of stuff will circulate through the yard sales and Craigslist, and some resourceful people will get busy fixing broken stuff that still has value. But the other infrastructure of shopping is toast, especially the malls, the strip malls, the real estate investment trusts that own it all, many of the banks that lent money to the REITs, the chain-stores and chain eateries, of course, and, alas, the non-chain mom-and-pop boutiques in these highway-oriented venues.
Here’s a huge question then: are we merely (!) at a major disruption in the economy that will eventually right itself, or in a complete shift away from old values, something that will require major restructuring of the global economic system?
Either way – is Keynesian economics going to work this time around?
Jump in the discussion at The Future Forum.