Economic Recovery Can Take Only One Path

It seems so funny the huge number of folks acquainted with basic principles of economics, who can teach it well, but can’t support it. Our current economic system in the West is broken. The foundation itself is broken; it cannot but collapse. Indeed, it already has, but the sheer size of it will make the fall painfully slow. Most of what the experts are saying amounts to encouraging fresh guylines be attached, but it won’t work — the foundation is gone.

It’s been gone for a long time, but nobody wanted to talk about it. That is, not in the mainstream information sources. The information has been available elsewhere for more than 20 years, going back to the early days of the Internet. When I first went online more than a decade ago, it came as a surprise to me how much economic information was available, contradicting the popular press. I devoured it, having already been teaching Economics for several years. Think of it: Some 20 years ago minority voices were warning this was going to happen. They didn’t quite know the timing until it got closer, but they knew enough theory to understand the whole thing was long past broken. They got their information from books and papers going back prior the WW2 (the 1940s for those of you historically challenged). So let’s take a look at some of those fundamentals.

Primary economic activity consists of extracting resources as they exist in nature. That’s usually hunter-gather stuff, but includes fishing, logging, mining, etc. Secondary economic activity means either growing your own stuff through cultivation (and animal husbandry) or processing stuff you get from nature. That includes building and various types of crafting, manufacturing, refining, etc. Tertiary gets us into trade, banking, transportation, services, etc. As long as any particular system continues to do all three, natural economic variations don’t cause too much disruption in life.

The key to balance is human employment. As long as people are working and making some income — able to carry on an exchange of goods, services and money — the economy can absorb shocks. That is, when one economic activity collapses for whatever reason, the workers can be absorbed, or at least carried through, until something picks up the slack and puts people back to work. Encouraging people to save also helps. It also provides the means to investing so folks with bright ideas can create new business, and allow old ones to die. The whole idea is to maximize productivity, yet not outrunning the balance point. There is a certain amount of labor which must always be free — a percentage of unemployment — to enable the necessary change from one sort of production to another as needs, fashions, whims, etc., change.

We got way out on a limb, with most of our nation’s labor involved in a very narrow range of activity, all in the tertiary. There were far, far too few people employed in the primary, and most of those in the secondary were very narrowly deployed in just a few things. The bulk of our economy was invested in non-productive pursuits, without anything to back it up. Propping up the tertiary services with trillions of dollars is simply throwing those dollars away. What little productivity we do have is consumed in a bottomless sinkhole. Indeed, what’s being tossed into that sinkhole is borrowed from future productivity, which will certainly not come.

The only path to recover now is via localized economic activity. We have to recreate the primary and secondary, and we have to spread it out as wide as possible. It won’t be too hard, since we won’t be able to import much of anything — the dollar will be utterly worthless on the international market very soon. The only way we will get people back to work is to stop supporting the collapsing tertiary economic activity, and invest in the primary and secondary. In other words, we have to regain all the extraction and manufacturing activity we sent overseas.

Only when we rebuild the localized system will we have any hope of getting people back to work, and the system being powerful enough to support some kind of recovery. It will have to come by people building new businesses from scratch, without much capital except what they have on hand. The bailout efforts must stop, or it will only prevent people getting back to work.

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