The Real Economy Has A Memory
Governments and financial institutions learn economic lessons all the time, just like we do. This great recession we are still enduring could have brought everything down like a house of cards, but principles learned from earlier eras convinced governments to invest heavily in stimulus financing to keep the various economies from failing, and it worked for a time. But now as we teeter on what appears to be another decline, it’s becoming clearer that something different is required, something more fundamental and reflective of where people really live rather than how investors make their money.
Put simply: the sensible economy has a memory. For years now, Canadians have been encouraged to get behind policies that favour capital interests over other alternatives. This led to more lax restrictions on large businesses and corporations and a pattern of constantly lowering taxes in the business field. We were consistently told that international finance, trade and economic vitality were complex fields and we were best to leave it to the experts. The demonstrations on Wall Street and other financial centres around the world seem to be signalling that citizens no longer trust that model.
It only makes sense that people now have deep questions and a limited tolerance for a system that is clearly rewarding the few over the many. We had thought the new international financial order would bring about more opportunity for all. And if the financial experts had delivered on their promises we would have discovered fewer class battles, a reduction of poverty, and, above all, a resurgent middle class. It didn’t happen and we’ve now lost enough confidence in the economic paradigm that we’re beginning to take to the streets. Canadian citizens are now confronting a growing awareness that the financial system itself as a tool for a strengthened democracy and individual advancement has gone off the rails.
We’ve now been around long enough as a country to recall that we’ve been through this before – the Great Depression, the many recessions. This one feels different though because it’s global in scope and for a while that breadth paralyzed us. But now we comprehend that the great wealth generated through such a large venture resulted in a few people and corporations taking home the winnings while the large middle class continued to languish. For a time we tolerated this scenario because at least we could purchase a nice car, a new computer, or even a bigger home. Unfortunately we accumulated such things on credit, leaving us in greater debt while others walked away with unseemly bonuses.
We have been led to believe that a robust middle class was the very foundation of an advanced society, yet we are now hearing that, relative to other income groups, the middle class has decreased by 17% over the last 20 years in Canada. Something is striking us odd about this. With so much wealth created, why didn’t average families benefit?
Now we’re thinking of something else entirely – financial meltdown. With the growing dark clouds on the horizon we are in the process of losing faith in our financial masters and the governments that support them. Increasingly we are reading or hearing stories of how this is where the financial guardians went wrong just prior to the Great Depression. By focusing so much on making money off of money rather than an active workforce making solid products, they were creating a scenario where a lack of confidence could spook the entire system – which is what happened.
John Kenneth Galbraith, the great Canadian economist, and someone intimately involved with the workings of Franklin Roosevelt and the New Deal, often wrote about people who make massive amounts of money from speculation in a short period of time and how they often forget the essentials of sensible economic management. Here’s just one of his observations:
Financial disaster is quickly forgotten. In further consequence, when the same or closely similar occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliant innovative discovery in the financial and larger economic world. There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.”
I wish my parents were still alive – they’d remember. As survivors of the Great Depression, they never forgot the pain it inflicted and their generation worked through legislatures throughout the land to ensure that safeguards would be put in place to guarantee no such disaster befell their children. Now an era of speculation, private greed, and a lack of proper public oversight, has brought us to the brink once more. Our parents banked on the premise that the best defense against such things was a solid and progressive middle class in this country. Sadly, that group is shrinking in potential and is now waking up to its loss.
Did the international financiers lose all memory of lessons learned along what had been a productive economic path in earlier decades? It would seem so. And in that loss they have brought us to the heart of our current predicament. We can never experience a full recovery until we address this oversight. We risk growing upheaval and demonstrations until we solve it. Memory is one of the financial system’s greatest allies. Lose it and you lose our confidence. And so here we are. We are beginning to remember.