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Brother, can you spare a paradigm?

Aubrey Cohen’s Friday piece on the Seattle housing market got me thinking about paradigm shifts. The shift from faxes to e-mail, for example, took more than a decade. The internet has fundamentally changed business and everyday life –but slowly.

In just the last year, however, we’ve seen collapse of the stock and real estate market, decreases in home values, multiple bank failures (including Washington Mutual) and the potential bankruptcy of the big 3 American automakers.

The typical solution is to loosen rules and allow more borrowing. Credit is the fuel of innovation, driving interest rates lower, inspiring investment, job creation and expansion of the market. But easy money is what got us into this mess in the first place.

And we are in a liquidity trap. Rates can’t go any lower than zero. Despite a bail out, banks are sitting on their cash until things become more stable. Even dropping cash from a helicopter may not inspire spending.

A Keynesian-Obama-New Deal based on infrastructure upgrades might reduce unemployment, but then what? In spite of the many make-work infrastructure projects undertaken by the New Deal, there was the recession of 1938 when the projects were done. Put a shovel in my hand, but will I buy a big screen television? It wasn’t until World War II broke out that that depression ended.

The solutions (and the problems) of the past aren’t working. Since the seventies, taming inflation, not full employment, was the objective of central banks. Ironically, now we are trying to get inflation going with little luck.

Perhaps in 2009 we’ll begin to see a new paradigm, if there is one, take shape.

An economy built on single family homes filled with furniture, appliances and a car out front, all bought with credit, may disappear.

Considering all this, do we really need a rebuilt viaduct? And doesn’t this change our views about affordable home ownership? What does sustainability look like with falling demand for oil and automobiles? Can we cope with getting what we’ve asked for all these years: a less car-dependent culture living within its means in compact communities? Maybe that is the scariest thing of all.

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This entry was posted by Roger Valdez on Monday, December 29th, 2008 at 10:00 am and is filed under Architecture, Government, Planning, Politics, Preservation, Seattle lifestyle. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

  • Matt the Engineer

    My view: Ever since the invention of the mechanized assembly line we have been running toward a future of low employment. If most production can be done with very few workers, and everyone else is unemployed, then who will buy these goods? This model leads quickly to income inequity, with plenty of low-paid service sector workers, and few but rich factory owners. Our solution was to stimulate over-consumption by means of cheap lending and high government spending that drove up debt. This was a reasonable but short-sighted fix, compensating for automation with high demand – if we consume enough products then even efficient automated industries will need workers. However, this simply moved the problem a generation or two out.

    We’re now at a stage where we’re out of personal and government debt capacity. Our high consumption can’t keep up with newer challenges of moving manufacturing overseas. Without adding as much real value to the world market as we take, and without more debt to buffer this imbalance, we face a shrinking rather than a growing economy.

    It’s time to bite the bullet and change our business models. We should consume less, but also work less – a single job shared between two people but with fair pay could easily support two families with today’s productivity levels. The trick will be in finding a way to convince the upper classes to limit themselves to a single order of magnitude pay above their lowest paid workers.

  • John the Realist

    Matt,
    You are wrong. Very wrong. Name one culture in the history of man that has implemented the restrictions and Luddite behavior you suggest has prospered.
    The solution is this. Reduce government spending each year by that of the previous year. Reduce taxes thereby encouraging capital innovation and savings. Reduce government regulation of business and the personal lives of the citizens.
    The result will be a happier population as families can survive in Seattle for example on one income rather than both parents having to work. One to pay the taxes and the other to pay the living expenses. The national debt will be reduced and eventually eliminated. Household debt will be reduced and eventually eliminated by those families who are responsible people. Those who are not will go bankrupt.
    Last but not least, hold those responsible in both political parties for this mess. They need to be in jail. With less government control of our lives, it makes it less likely for corruption to take place. There is no incentive to reduce regulation and taxes when that provides the basis for government officials to extract money from one group or the other in exchange for harmful regulation against their competitor or spending of taxpayer money on programs that otherwise have no market value, only political value.