“The End of Normal: The Great Crisis and the Future of Growth” by James K. Galbraith (Simon & Schuster, $26).
Economists use math-based models to explain what happened and what will happen. In the real world, businesses and individuals exercise their right of choice. No one could predict the simultaneous bursting of the housing bubble, financial market calamity, government bailouts and the rise of “too big to fail.” Galbraith sees more economic uncertainty in his discussion of how “The Four Horsemen of the End of Growth” continue to gallop:
“The Choke-Chain Effect” also has a domino effect. An increase in the cost of natural resources (e.g. oil, natural gas, water, coal, etc.) changes the dynamics of profit models, consumerism — and the effect on alternatives. As oil prices rose in 2008, the cost of gasoline did as well. Money consumers earmarked for lifestyle purchases decreased. Some consumers used their credit cards to maintain their lifestyle — which added to their debt and decreased their savings.
Mother Nature plays an economic role here. California, the nation’s biggest agricultural producer, remains in severe drought. The state is in its third year of insufficient rain, which will erase $2.2 billion from its economy this year. With lower harvests, consumers see increased prices in the produce aisle.
Government policies can be choke-chain, too. The costs of addressing climate change mandates will be high — too high for some industries. We’ve seen this already: As farmers diverted corn production into the fledgling biofuel industry, the costs of corn-related consumer products rose.
“The Futility of Force” — “The world is no longer under effective financial and military security provided by the United States and its allies.” Why? Military intervention hasn’t proven to be an effective way to solve problems. Bullets don’t change the minds and wills of the people involved; in many cases they just make the opposition more resolute. Politics and centuries-old prejudices count more than weapons because they determine how people view their day-to-day lives.
Conflicts don’t create economic value either. Direct costs of the U.S. military actions in Iraq are estimated at $800 billion; that money didn’t propel economic growth here or in Iraq. Additionally, the indirect costs of dealing with jobless and disabled veterans will have a long-term economic impact.
“The Digital Storm” — Much has been written over the years about how the creative destruction of technology has displaced workers and expanded the income-equality gap. There’s never been a doubt that “the big function of the new technologies is to save labor costs.” With computers, satellite communication and the Internet as platforms, even the use of highly-skilled workers can be minimized.
Technology also makes many low-paid service jobs obsolete. Example: The bar code. There are at least 20 checkout lanes at the Walmart by my house. I can’t remember the last time I saw more than five manned by a cashier and bagger. As an alternative to waiting in long lines, there are eight self-checkout lines. Shoppers do the work of the cashier and bagger; there’s one employee available to help them when they have a problem.
“There is no paid activity to replace the activity lost. The plain result of the new technology is unemployment.” High unemployment inhibits economic growth.
“The Fallout of Financial Fraud” — The collapse of the residential real estate bubble in 2007 will continue to have an effect. Credit ratings of those who lost their homes will make it difficult for them to become financially stable. For those still paying their mortgages, it will take years to recover the equity wiped out. Banks that lost billions have over-tightened mortgage-qualification standards. Residential real estate limps along — and with it the jobs it once produced.
Key takeaway: Galbraith urges politicians and economists to acknowledge the reality of the Four Horsemen in the U.S. and the world as they try to figure out what’s next.
Jim Pawlak is a nationally syndicated book reviewer.
