The economic slump in the United States is part of a global slump, or worse, a global depression. And the U.S. farm economy, now an integral part of the global economy, cannot revive until the global economy is somehow revived.
The current U.S.-world economic slump is not cyclical. It is a worldwide structural, under-consumption problem and will not be resolved until this is solved.
It took the massive expenditures by government (mostly deficit-financed) in support of the World War II effort to pull the American economy out of the Great Depression. Purchasing power is the willingness and capacity to purchase goods and services. It is possible to widen the purchasing power stream and pull an economy out of a depression by government action if that government has the courage to take the spending efforts that are required.
One can hope that the economic downturn of 2000-2001 need not turn into a second Great Depression. But a restricted flow of purchasing power in 2000-2001 is pushing the global economy, and the U.S. economy with it, down a slippery slope, just as a restricted flow of purchasing power did in 1929-30.
This slide will continue as long as the global economy is plagued by a restricted flow of purchasing power. How far and deep this slide will go, I have no way of knowing. Recessions have a way of feeding on themselves. We see this at work everyday as firms lay off workers (act to restrict the flow of purchasing power) in efforts to save themselves by reducing costs.
Consumer spending in the U.S. remained strong in the summer and fall of 2001, but other components of that flow of purchasing power continue to be weak. Capital spending in the U.S. has hit rock bottom. Expenditures on public goods (education, roads and rapid transit) by government have been weak over the past decade, and are becoming weaker.
Outside of Japan, the wages of workers in the Asian Rim countries are so low that those workers never give a thought to purchasing the many and varied gadgets, clothes and machines that they are producing. The burden of purchasing the plentiful goods being produced in the Asian Rim countries falls almost exclusively on American consumers, and those consumers are heavily laden with debt.
So who is going to purchase all the stuff that this wonderfully productive global system – stretching along the Asian Rim from South Korea to Singapore, including Japan, across India to Israel to Western Europe and then across the U.S. and Canada – can produce? Making use of the most modern technologies, this global production system is turning out products in ever increasing volumes. The range of products is astounding: from electric toothbrushes to Seiko watches, from Nike athletic shoes to designer jeans, from computer components to radios, from Nissan trucks to Lexus automobiles, from scooter bikes to rapid transit railcars, from thousands of miles of fiber optic cable to wood fiber products of all kinds. The list is endless and growing.
American consumers have until now done more than their share in buying this stuff, but that appears to be slowing down. Other segments of the purchasing power stream have been weak, and are becoming weaker. Investments in capital goods are down, as are government expenditures on public goods in the U.S., and consumer expenditures in the Asian Rim countries have never been
As business profits are down and workers are being laid off, purchasing power becomes weaker and we find ourselves in a recession, or perhaps a real depression. And we will remain mired in this economic slump until ways can be found to expand the flow of purchasing power once again. Further, and most importantly, this is a global slump, so the purchasing power stream that we are talking about is a global stream.
To pull out of the global economic slump induced by a restricted flow of purchasing power, the governments of the economic heavy hitters – Japan, Germany, and the U.S. – must embark upon large public works programs. Those could be financed either through progressive income tax receipts or by budget deficits, thereby widening the flow of purchasing power. I am talking about major efforts to improve educational systems, redesign and rebuild urban transit systems and move to cleaner energy-producing systems.
Complementing these public goods-producing activities should come efforts to reduce income inequalities in the major and emerging economies. In the U.S. this means increasing the minimum wage (perhaps by 50%), imposing a wealth tax on the rich and adopting fair trade practices to protect our workers from imports produced under very low wage conditions.
Finally, it is time to restructure the farm production plant in the United States along less intensive, more sustainable lines. This means less dependence on export markets, and financing this restructuring job with the funds now going to support the incomes of big crop farmers.
This is what it will take, and perhaps more, to pull the U.S. economy, as a part of the global economy, out of its present slump. It will take time and require major efforts. The global slump will hang on until we find a way to widen purchasing power to where it can purchase what this wondrously productive global production plant can turn out.
What about the impact of the Sept. 11 terrorist attack on the United States? Over the next several months it is likely to be negative– perhaps even importantly negative. Until the uncertainties recede, consumers are likely to cut back on plans to purchase big-ticket items, and businesses are likely to further reduce their investments in capital items. Thus, the short-term effects of the attack appear to augment the line of argument developed in this essay. The longer-run effects are anyone's guess.