The Upside of a Down Economy

October 12th, 2008

There’s not much good news in the slow-motion global market crash we’ve witnessed over the past couple of weeks, but what is positive is the growing recognition that what matters is not the mostly fictitious Wall Street economy of credit default swaps and mortgage-backed securities but the “real” economy and the disastrous consequences of deregulation for the folks on Main Street. The fact is, as NYU economist Nouriel Roubini has pointed out, ordinary people have pretty much run out of money, stopped buying cars and homes, watched their retirement savings get cut in half, and begun to pull whatever they have left out of the stock market. We are witnessing a worldwide panic that will not be halted by Wall Street bailouts or technical manipulations of the money supply; we need fundamental reform of the economic system, and a reinvestment in infrastructure, jobs, and sustainable energy and other technologies.

The is not the “collapse of capitalism,” but it probably is the end of capitalism as we have known it over the past several decades. All of a sudden, the era of deregulation is over, and even the U.S. is considering tighter government control over and perhaps even the partial government ownership of the financial sector. As Roubini states, “This might be the beginning of the end of the American empire.”

Despite immense losses of wealth, jobs, and consumer confidence, this might turn out to be the sort of shock that leads people to rethink their priorities, and provides an opportunity to focus on the design of a more sustainable economy. Generating our own local fuel and energy, restoring our own productive capacity, reducing waste and unnecessary consumption, might just be the approach we need to restore real wealth and reduce our dependence on both foreign oil and foreign credit. While it’s not the immediate consequence of our unsustainable environmental and social policies, it might serve as evidence of how precarious and artificial our economic system is, and how vulnerable it is to its own excesses.

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