stock market crash recession

RINGOES, NJ. The numbers keep rolling in. The Dow is below 7000. Unemployment is above 8%. In the fourth quarter of 2008, the economy contracted at a rate of 3.8%. This was less than some economists predicted, but such “negative growth” indicates that the economy is sputtering and people are not spending as much. Or it might be better to say that the economy is sputtering because people are not spending as much. In order to address this economic downturn, a downturn that has spread across the globe, the Congress passed a “stimulus package.” The goal, of course, is to stimulate growth. In fact, steady growth is the benchmark by which our economy is deemed healthy. While it is heretical to do so, I think it is time to ask whether or not the idea of perpetual economic growth is, in fact, a realistic indicator of economic health.

Economic growth requires increased production. The economy cannot grow unless production grows. But production cannot increase unless consumption increases. Someone must purchase the goods that are produced. If this does not occur, economic growth is impossible. In the fourth quarter of 2008, Americans, feeling the economic squeeze, chose to hold on to their money. They purchased less goods, and the economy contracted. This restraint, if economic growth is the benchmark for economic health, was bad.

Consumption, then, must increase if the economy is to grow, and a healthy economy is a growing economy. Thus, a healthy economy requires a steady increase in consumption. One way to facilitate this expansion is to tap into foreign markets and thereby find new consumers of the goods we produce. This, of course, is ultimately limited by the size of the world and the capacities of foreign markets to absorb our products. Furthermore, expanding into foreign markets is made difficult when the economic downturn is global in scale. Everyone’s wallet is tighter.

A second way to expand consumption is to increase per capita consumption at home. The economy needs Americans to buy more products. When stated in this way, it becomes the patriotic duty of every American to consume. But if growth is to be perpetual, our consumption must not only continue but steadily increase. Forever. The long term prospects of such a program are dubious when we consider the finite natural resources at our disposal. When we factor in the contracting birthrates throughout the developed world, the idea of perpetual growth seems obviously ill-fated.

Now I realize that economic growth is not reducible to Happy Meal Toys and cheap toasters. Production includes non-tangible goods that are not the direct object of appetite. But, nevertheless, consider how this ideal of perpetual growth, in large part fueled by perpetually increasing consumption, stands in relation to traditional virtues like self-control and thrift. Imagine what would happen to our economy if Americans decided to practice self-control and thereby resist buying things they don’t need. Imagine what would happen if Americans resurrected the notion of thrift, a way of life practiced by our parents and grandparents who lived through the Great Depression. What if Americans once again began to practice, on a significant scale, the neighborly arts of barter and borrowing? The economy would contract dramatically. It seems clear that an economy based on perpetually increasing consumption is an economy whose health depends on the active denial of certain virtues.

John Maynard Keynes, that giant of 20th century economics, has made a comeback of late. He, of course, advocated the idea of deficit spending to stimulate economic growth. Keynes is the acknowledged authority whose economic theories are being used to justify current attempts to jump start the economy. As we buckle in for another Keynesian-inspired spending spree, it might be instructive to notice that he also had something to say about the relationship between economic growth and virtue. In a 1930 essay titled “Economic Possibilities for our Grandchildren,” Keynes imagined a future day when the economic problem of scarcity would be solved and humans could pursue more important things than their daily bread. But such a glorious future would require economic growth, and in order to achieve that, we must, for a time, set virtue aside. “For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.” In order to sustain economic growth, we must, according to Keynes, embrace vice and deny virtue. We must set aside worship of God and continue to bow to the god of avarice. We must, in short, take up idols if our economy, as currently structured, is to be healthy. The free market does not require this, but the ideal of perpetual economic growth does.

If the health of our economy is predicated on the denial of certain virtues, something is seriously amiss. If the ideal of perpetual economic growth requires a perpetually frenzied consumerism, it is time to consider a different indicator of economic health. President Obama’s stimulus package is clearly based on this false ideal of perpetual economic growth. This ideal is embraced by the leaders of both political parties, even as the Republicans reject the specific means to that end. As the slurry of dollars begins to wash over us, many Americans are looking for a new direction. A return to the virtues of self-control and thrift would signal something really radical. So would a return to the idea of sustainability, a return to the belief that conserving for future generations is our first duty, and a recognition that putting aside idols is the first step to wisdom.

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Mark T. Mitchell
Mark T. Mitchell teaches political theory at Patrick Henry College in Purcellville, VA. He is the author Michael Polanyi: The Art of Knowing and The Politics of Gratitude: Scale, Place, and Community in a Global Age (Potomac Books, 2012). He is co-editor of another book titled, The Humane Vision of Wendell Berry. Currently he is writing a book on private property. In 2008-9, while on sabbatical at Princeton University, he and Jeremy Beer hatched a plan to start a website dedicated to political decentralism, economic localism, and cultural regionalism. A group of like-minded people quickly formed around these ideas, and in March 2009, FPR was launched. Although he was raised in Montana and still occasionally longs for the west, he lives in Virginia with his wife, three sons and one daughter where they are in the process of turning a few acres into a small farm. See books written by Mark Mitchell.

11 COMMENTS

  1. The elegant simplicity of this post is commendable. The post deals with a controversial (in some quarters) and possibly complex issue in a way most anyone can understand. Very well done.

  2. Beautiful post, well said. It seems to me that one of the real tasks of Front Porch Republic is to either get those on the left who believe in sustainability and localization to realize that those are at root conservative principles, to get those on the right who are against sustainability and localization (the neo-cons) to realize that they’re not conservatives, or to give up the whole right-left division for a new common ground based on sustainability and localization. They all really amount to the same thing, getting a movement together based around sustainability, tradition, community, and localization; the names don’t matter.

  3. Great post! I have been dumbfounded by my friends and family who buy into the “conservative” notion of the preservation of the consumption economy. They are all strong Christian people who seem to be turning themselves into pretzels to stay in step with Reagan conservatism. I’ve tried, mostly in vain, to show them that the kind of attitudes they are describing are terribly inconsistent with their Christian values. Your post really highlights this fact, as well as calling into question the practicality of eternal growth in the economy.

  4. Mark,

    You make some very persuasive arguments for thrift and an end to consumerism. I also believe that you have hinted in an earlier post (What our hands have wrought) a need for more production in the USA and less services (indirectly due to more people producing making less available to produce services). You mention that the economy is currently bad and there may not be a quick fix as increase spending is not going to get us out of recessions/depressions every time (though it may this time). Your point being the economies cannot grow forever.

    Personally I agree with you but I do have some questions that tickle at the back of my mind and one thought on economies expanding that you did not mention. The area of expanding economy that you did not mention is that the population of the world is growing as well as the population in the USA. This leads to new customers. These new customers can grow the economy without necessitating the need for an increase in per capita spending. The principle being I do not need to go from 10 people with $10 each to 10 people with $11 each to grow the economy if I go from 10 to 11 people with $10 each. As the world population grows it creates the need for the economy to grow as well. I would even suggest that if the world/national economy is not keeping up with the world/national population growth that there are people who are moving backwards financially.

    Now for the questions that are in my mind:
    1. Is there in our corporations around the world the idea of “Planned Obsolescence” to increase consumerism?
    2. How do we decide if a GDP is actually growing or not with inflation and other ideas taken into account? If I produced 10 corns at $10 last year and now have 11 corns at $9 has the GDP grown or shrunk? I believe it will result in a 1 % shrinkage even though production is up.
    3. Do we actually believe that it is good to be reactive to changes in the economy versus being proactive? Does the dog wag the tail or the other way around?
    4. Is there a way to have a growing economy and not have vice? Does thrift actually lead to virtue or is thrift the virtue? I noticed that you listed thrift as a virtue.
    5. If I grow my own food in my backyard does that help or hurt the GDP? It seems that it would hurt the GDP but actually is beneficial to the real economy of the country.
    6. In today’s society is not my ordering from the $1 menu (no names mentioned to avoid lawsuits) thrifty? I am not sure that poisoning my body is a virtue.
    7. Do lawsuits add to the GDP?

    Finally spending as if there is no tomorrow does not makes any sense. I believe that while thrift has a technical definition it means many different things to many different people. I believe that the thrift you are referring to here may need to have a better definition in order for the “virtue” to be better understood.

  5. We can live long and happy lives without virtue. We cannot live a decent life without economic growth. Virtue has got to go into the ashcan of history.

  6. Bravo, Mark! I’ve finally found someone who says the same thing I’ve been saying. “Economic growth,” which is utterly dependent on population growth, is unsustainable and has nothing to do with economic health.

    I am the author of a book devoted to this topic that I think you may find very interesting. It advances a new economic theory that explains how further population growth beyond some “optimum” level actually becomes cancerous; while it enhances the macroeconomy, it steadily raises unemployment and poverty and erodes the microeconomies of individuals. Since you have a great blog that obviously has a good following, I’d be very pleased to provide you with a complimentary copy if you would just E-mail me with a shipping address. No strings attached.

    Pete Murphy
    Author, “Five Short Blasts”

  7. Thanks, Pete. I would very much like to see your book.
    You can mail it to the following address:

    Mark T. Mitchell
    James Madison Program
    83 Prospect Ave.
    Princeton University
    Princeton NJ, 08540

    Thanks again.

  8. Hurray! Another heretic!

    Check my posting “End of Consumption” here:

    http://entropicjournal.blogspot.com/2009/02/end-of-consumption.html

    Of course perpetual growth is not possible on a finite planet, and for millennia wise men and women have known that greed and gluttony are not good for the human soul. Duh.

    But here is the trap: thanks to centuries of mechanization and automation, most people depend on employment that has NOTHING to do with fundamental human needs. So when people “go thrifty” – MASSIVE unemployment ensues. This is why our elites are freaking out. THey turn the interest rate knob to zero; they print and throw trillions into banks…and nothing happens!

    But blaming the guys on the top is a waste of time; they are nothing more than PERFECT reflections of us.

    We-the-consumers demand the lowest prices.

    We-the-business owners demand the lowest costs.

    We-the-investors demand the highest rates of return.

    Thus we embrace virtually every new productivity improvement which reduces human labor per unit output of good or service. And what about the labor-destructive aspect of this wondrous “creative destruction”? What about NEEDING each other? Oh, that’s not my responsibility! A growing economy will create better jobs.

    Oh. Like making houses three times larger than we need rather than only twice too big. Like making 3 ton armored personnel carriers to haul our children to school and soccer practice. Like producing vast excesses of junk food. Like making fossil-fueled toys for people to play on. Like making hugh numbers of sophisticated weapons and exporting them to places that are seen as “unstable”.

    The cognative disconnect takes one’s breath away.

    Unfortunately, this “growth” game may have to completely collapse before the human race becomes willing to try something else. Like living sustainably.

  9. What we’re talking about here is the Growth Imperative. And what is that?

    I highly recommend you listen to episode #140 here – it is the most profound analysis of the Growth Imperative I’ve ever heard:

    http://c-realmpodcast.podomatic.com/

    The gist of it starts @ 6:30 and stops about 2/3ds of the way thru, with a musical interlude you may want to fast-forward. Thomas Homer-Dixon makes a convincing case that the Growth Imperative is intimately tied to the fierce determination of post-WWII economists and other elites to forestall conditions that would give rise to Fascism and another Holocaust. Seen in this light, their impulse is not ignoble. However, this does not change the fact that Perpetual Growth lives on Man’s vices rather than his virtues…and that it is rapidly depleting and destroying Man’s home planet.

  10. “Keynes is enjoying a “comeback of late” ? Please do remind me of when he was gone so I can luxuriate in the idea that the folks in Washington might have once thought financial probity was a salubrious component of the Fiat money, Fractional Reserve Banking System.

    It aint consumption thats bad in and of itself, it’s when your only commodity is a bundled instrument of debt and you’ve managed to make labor and local business a pejorative that it becomes a dead end.

    The geniuses in our beloved Federal District seem to have only boned up on the Cliff Notes Version of Keyne’s Played Out Vein of Consumption Economics, the one that just says “spend”…or, bomb and strafe….or preferably both .”Pretend that fair is foul and foul is fair”………I was not previously aware that penury could be so artfully arranged. Perhaps the Big Game of Keynesian Post Office will come to an end and we can finish this epic little Mexican Standoff we’re having. Then we can return to the Fair is fair and foul, foul reality normally associated with rational behavior.

  11. How does this harmonize with the nature of progress — in that it’s good that we developed MRI machines, water sanitation plants, and airbags? All those things cost more and require more production, as well as consumption.

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