Putting Toothpaste Back in the Tube

Over the coming year, we'll see our society divide between those who desperately long for a return to "normalcy" and those who believe such a return is impossible. The nature of a paradigm shift / epiphany / new perspective - whatever you choose to call it - is to rock your world and make you see things through new eyes. If you don't like what you see, well, you can always go back, but to do so means to invest ever more energy into denying a new reality and crafting a false world. To go back to the old ways is to live a lie and settle for something that is less than authentic. For a paradigm shift to have any value, it must be processed and incorporated into one's world view.

That's why I enjoyed Paul Krugman's column today in the NY Times (I always do, what a combination of wisdom, insight, and good writing) - I urge you to take a moment to read Life Without Bubbles and come back for a little discussion.

In fact, however, things can’t just go back to the way they were before the current crisis. And I hope the Obama people understand that.

The prosperity of a few years ago, such as it was — profits were terrific, wages not so much — depended on a huge bubble in housing, which replaced an earlier huge bubble in stocks. And since the housing bubble isn’t coming back, the spending that sustained the economy in the pre-crisis years isn’t coming back either.

To be more specific: the severe housing slump we’re experiencing now will end eventually, but the immense Bush-era housing boom won’t be repeated. Consumers will eventually regain some of their confidence, but they won’t spend the way they did in 2005-2007, when many people were using their houses as ATMs, and the savings rate dropped nearly to zero.

So what will support the economy if cautious consumers and humbled homebuilders aren’t up to the job?

A few months ago a headline in the satirical newspaper The Onion, on point as always, offered one possible answer: “Recession-Plagued Nation Demands New Bubble to Invest In.” Something new could come along to fuel private demand, perhaps by generating a boom in business investment.

We've become addicted to Bubbles - economic gimmicks that give us giddy hills of good times to ride up on, but inevitably are followed by depressing hills of bad times to tumble down. Those of us who long for gently rolling plains are boring, generally shouted down by the proponents of the "next big thing," inevitably a bubble of some kind that is unsustainable, inevitably to be followed by a let down of some kind.

But the bubble proponents don't care about what will follow, because they got theirs during the good times - "Eat Dessert First!" they shout, "Because Life is Uncertain." On that point, they are wrong, as anyone with eyes can see. They are deluding not just themselves, but all the rest of us to boot. By now we should all have learned what we might call the Law of Bubbles, which states "All Bubbles Must Burst At Some Point."

When the bubble bursts, the rest of us are left to pay for the party with our own hangovers. Why anyone would want a hangover without a party is beyond me, but that is what most voters and societies are doing when they support a bubble - an irrational pursuit of an unsustainable economic model that benefits a few disproportionately, but that then demands that all pay for its consequences. When society follows leaders, either political or business, who promise the unsustainable and deny reality, they are being willfully ignorant - "Detroit Shall Rise Again" was my favorite promise from last year's Michigan primary (see The Party Never Ends ... Cartoon Lemonade - my post from last January regarding Mitt Romney's demagoguery).

The economic toothpaste is out of the tube, as far as I'm concerned. We will recover from today's economic hell, but things will not be as they were. We will have a new normal, which will be more characterized by caution. It will take a long time to restore trust, of both the political and economic varieties. In the meantime, we will find a new level of balance, a new normal, which is a better fit for a new world of limits. Sustainability must become the new norm. Forces larger than our own selfish needs, as strong as we know those to be, are driving us to moderate our habits and our lifestyles. We need not sacrifice, but we must change.

The coming debate will be between those who deny reality and want to return to the old ways, and those who see a new reality and look at the old ways with less nostalgia. Guess which side I'm on.