|
In
Case of Depression, Break Glass
February
11, 2002
by Kurt Cagle
The images that we carry from the 1930s have the sepia tinged
characteristics of faded black and white photographs - the
Dust Bowl, grimy laborers standing dejectedly in front of
a shuttered plant, banks closing their doors in front of angry
investors, shanty towns stretching as far as the eye can see.
Perhaps it is precisely because of these images that it is
difficult to conceive of a Depression in the 21st centure,
more than seventy years later. We know what a Depression is,
and its impossible for things ever to get that bad again.
What many don't realize, however, is that a depression is
not simply a bad recession. A recession is to a depression
much like a cold is to cancer. A recession occurs when production
gets ahead of demand - people are let go, profits drop somewhat,
inventories draw down, and eventually (usually after about
18 months or so), the inventories are down to a sufficient
level, and demand begins to pick up again. Sometimes recessions
are started by shocks - the oil crisis in the 1970s, for instance,
coupled with moving off the gold standard, created a bizarre
situation where economic growth was anemic while inflation
shot up. Eventually, the money supply and oil both stabilized,
laying the groundwork for an apparently robust period of growth.
Cancers typically remain undetected for quite some time,
but the overall health of the person gets subtly worse, until
the immune system is compromised by a cold or something similar...
then it gets very much worse. Depressions share this characteristic.
What's cancerous in our economy? Living wages have dropped,
relative to inflation, nearly every year since the 1960s.
Simultaneously, the amount of credit that's been made available
has risen dramatically, meaning that rather than paying for
full for items, people (and companies) have increasingly been
buying on credit, stretching out the time to pay at the expense
of becoming increasingly in debt. Why? Because everywhere
you listened you heard the "great news" - "We are in the New
Economy, and everyone will become rich, so you know that if
you buy something on credit today you'll have more money available
tomorrow! You can ALWAYS pay it back."
So we consumed, we consumers. Savings dropped to the lowest
level in decades, since savings accounts returned lower rates
than you could get from even the most anemic of stocks in
the 1990s. We bought larger houses and newer cars every year,
bought computers at $3000 a whack that would depreciate to
nothing in the space of two years. This behavior was very
common in 1927, by the way, though NOT to the degree you see
today.
Corporations did the same thing, of course. An acquaintance
of mine, a man worth about $20 million dollars once upon a
time, told me that the money was unimportant - it was only
a way of keeping score. We loosened the requirements on investing,
which made it easier for small investors to get into the market,
but that was only a side effect. It also meant that large
investors could undertake risky ventures, especially if they
could net far more money.
Derivative trading made it possible to make huge bets on
the direction that the market would turn. That was fine if
it was your own money, of course, but with loosened oversight
that money was increasingly coming from large pools - pension
funds, the working capital of cities, retirement accounts,
mutual funds - money that once converted into bits and bytes
became simply anonymous fuel to fan the bonfires. The ones
that profited were the ones who had the least scruples; the
captains of industry feted by Wall Street knew that their
goals were simple - make money at any cost for the shareholders.
In the 1970s, a typical CEO of a company would make about
30 times the "income" of the lowest paid worker. By 2000,
that ratio has risen to 5000 times the income, mostly on the
basis of stock, and in some cases it's closer to one million
times. Stocks a funny thing that way. A stock option costs
a company very little - because of lax regulation, in fact,
stock options are essentially free money. If you pay a software
engineer a small salary and award generous options, then they
may have the chance to make a lot of money, while the CEO
that hired him makes only a very small investment that will
ultimately net the company many hundred times the salary that
the programmer makes. In effect, Wall Street ends up paying
that programmer's salary, in a scheme that would have made
Ponzi green with envy.
However, this only works so long as there is fuel feeding
the fires; when the money begins to run out, when the demand
begins to drop, the fire goes out, quickly...
One other factor comes into play here ... energy. In 1971,
a gallon of gasoline cost about 28 cents. In 1977, as OPEC
flexed its muscles, a gallon of gasoline cost about $1.35
a gallon. Nearly twenty five years later, gasoline costs about
$1.35 a gallon. In other words, it has dropped in inflationary
terms back to about where it was in the early 1970s, maybe
about 50 cents a gallon or so.
That's about to change. Bush and company are involved in
a very dangerous chess game to gain control of the Uzbek oil
fields. It is no surprise that Iran and Iraq were both on
his list of "The Axis of Evil" - they control a significant
part of the oil fields in the region. Saudi Arabia, which
controls most of the rest, is seething in political unrest,
brought about largely because of the heavy-handed actions
of George Bush. You don't hear about in the American news,
of course (the media companies, in that era of free money,
were essentially bought up by the petrochemical industry),
but the region is simmering to boiling. If the Saudi monarchy
fell in a fundamentalist coup, then the majority of the world's
oil supply will be controlled by Islamic extremists who would
no longer really care about enraging the United States by
wiping out Isreal. Yet if any of this comes to pass, the price
of oil will rise above $40 a barrel, and the US government,
tied down by massive deficits, would be unable to subsidize
the low gas prices that have been another significant factor
in the ability of large corporations to continue their efforts
of globalization.
Because corporations have been using Wall Street to subsidize
their cost of labor, a no longer rising stock market means
that options become worthless. This is worth emphasing. The
danger here comes not from just falling stock market prices,
but even stagnating prices. If you get 1000 stock options
at the time of hiring, and the stock price remains unchanged
at the time you vest, those stock options are worthless. If
the stock market drops, this means that those options will
not be worthwhile for potentially years to come. This means
that corporations have to start paying their employees in
"real" money, which they know longer have because it is going
to the shareholders who are expecting dividends (or in the
case of Enron, is being embezzled through shady off book deals).
This in turn means that corporations will continue to shed
employees not because demand is slack, but because they can
no longer count on the stock market paying employees for them,
and have to readjust dramatically.
Add on to this a few other elements that make things even
scarier. Jobs are moving out of the country, chasing cheaper
labor. The economy is no longer involved in the manufacture
of things, but the production of services, things that have
no real tangible values. Japanese investors are now running
to the shelter of gold because the Japanese government is
no longer guaranteeing more than $75,000 in accounts even
as banks look like they may start to collapse, which in turn
means even more money being withdrawn from that economy -
that's money that won't be spent on US goods, by the way,
and other nations' economies, from Korea to Brazil to Switzerland,
are facing something unprecedented since the 1930s - deflating
currencies.
That's a Depression - when currencies deflate. A Depression
is pernicious, because it destroys value - slowly. It brings
down governments and high flying individuals. Corporations
that have bloated themselves are instead forced to sell off
foreign subsidiaries and then their less profitable local
divisions, but no one has the money to buy, so the value of
those subsidiaries drop. High energy costs may go down some,
but if the primary oil producers are unstable then they are
going to push the costs up as much as possible in order to
get money for their own local wars.
The Depression of the 2000s will not be the Depression of
the 1930s. The shuttered factories are a relic of the past,
primarily because the factories have all been exported overseas.
The ghost towns will be (are) in the office parks and high
rise office buildings, the empty K-Marts and deserted malls.
We have a bizarre state now where unemployment is very low.
This is an illusion. The measures of employment assume the
way jobs looked in the 1970s. Forty hours a week, punching
the clock. Instead, we have, through three decades of assault
by corporations, become a nature of contingency workers (a
lifestyle that was even eulogized by the business media of
the time). A company doesn't hire full time workers, because
it then needs to pay benefits to those workers. Instead, many
hire contingency workers from contingency companies to fill
most of their primary requirements.
These workers may get only minimal benefits, but because
they are under contract they are considered employed, even
if they only have work for a week a month. These workers don't
get unemployment benefits, aren't counted in the layoff announcements
(and most likely don't hear them, because they're assignments
have already been terminated) yet don't dare leave because
of the difficulty of moving between health insurance plans.
The programmers and artists who used to work in those places
are busy in their own little mind-realities, selling consulting
work when they can get it or hawking bad art on EBay. They'll
survive - they produce things, even if those things are ephemeral
bits of light. The others, the managers, the marketing people,
the sales people, will migrate downward to become managers
at Burger King, pushing those already there even further down
the chain. The ones that are displaced will find solace in
drink, or drugs; ending up on the streets.
There is a movement that has been growing in the United States
and throughout the rest of the world that is increasingly
in opposition to the people who are driving much of push into
depression. It is a movement of people that recognize that
governments do serve a purpose. A governor in system theory
is a mechanism that throttles down the excesses in the system,
that regulates not out of evil desire but because economic
systems where too much control resides in the hands of too
few develop feedback loops, positive reinforcements that,
left unchecked, result in the system itself undergoing a catastrophic
collapse. A governor bleeds off the excess power (money, energy)
of one part of the system and transfers it to another, not
out of some cosmic sense of fairness, but because too much
concentration of power in one area is ultimately bad for the
system as a whole.
Such a governor is not typically popular among those who
have power, and they will do everything in their power to
subvert that governor (or better, as in current circumstances,
taking it over entirely, then destroying it). Unfortunately,
without the governor in place, the very engine that generates
their wealth in the first place - the energy, drive, and commitment
of people working collectively - will be unable to do so,
and the system collapses.
Environmentalists see this, of course, because most environmentalists
work with and understand systems quite well. The movement
is also now benefitting from the influx of programmers who
are now unemployed and getting pissed; these are people that
make their living solving problems that work across systems,
and they too tend to see how things are interconected. Teachers,
librarians, writers, scientists, artists, the whole group
of those people who are often mistakenly clumped into being
considered, simplistically, as the "left", with all of the
negative connations that implies (left behind, the sinister
left, those who aren't "right" and hence wrong, etc), this
group of people are rapidly reaching a point where they realize
that rational discussion won't solve the problems, because
those in power have no interest in being rational - they confuse
enlightened self-interest with greed.
Currently, Bush is boosting spending, but only in boondoggle
defense projects that enrich a very small number of shareholders
but return nothing back into the economy, while simultaneously
cutting spending in those areas that could help people start
their own businesses (or keep those businesses going), educate
people up to the standards necessary for the increasingly
high tech nature of businesses today, or strengthen a crumbling
transportation infrastructure. He's pushing to give more money
back to corporations that have through incompetence and malfeasance
already squandered what they did have without any oversight
to insure that they change for the better.
Depressions come about in great part because government has
lost the resolve to govern - subourned by money and power,
they neglect or even abet the destruction of the structures
that regulate the flow of power. The Japanese Depression is
a good example of this, or Argentina. The Republican Party
at one time were noted for fiscal discipline and restraint,
but because their power base started out more closely aligned
to monetary interests they were the first bought. The Democratic
Party is marginally less in the thrall of big business, but
as the money signs next to members Republican and Democrat
in the latest inquiries into Enron reveal, the party is hardly
untainted itself.
Change can only come from the bottom up, can only come from
people mobilized and angry. We can now longer afford to "ask
nicely", as much as it is in our natures to do so. In the
face of avarice, venality and greed, this attempt at seeking
the moral high ground is viewed as a weakness. Instead, we
have to accept the fact that corporations exist only on the
sufferance of the people, and that the role of government
must serve not only to protect its people from the predations
of other states but perhaps more importantly to protect the
people from those within the nation, individual AND corporate,
who abuse the system.
More, we have to work, hard, to affect this change, to protest,
to boycott, to get elected people who will have the political
will to affect change, to take back from the relentlessly
anti-market forces of "The Free Market" our schools, our homes,
our common places, our airwaves, our Internet, our dignity
and our lives. The alternative, personally and economically,
is Depression. I know which choice I'd choose.
Kurt Cagle is a writer of computer books and science fiction
living in Olympia, Washington.
|
