The Recession - What's Different This Time?

OK, so President-elect Obama lowered our expectations by declaring that the recession we are in will be worse before it gets better. Now it is official.

So, we tighten our belts for the next twelve months or so, and then everything will be better, like in the previous recessions in the past 50 years, right? Not so fast. This downturn already has swallowed entire industries, with more lining up for government bailout so they won't disappear. Half million jobs disappeared in a month, the most in modern history. Did this happen overnight? Hardly. This witch's brew has been brewing for a couple of decades, and it has several other firsts to its credit, some that are not so obvious.

1. Highest total debt/GDP ratio in history. During the great depression, the total debt/GDP hit 260%. Now it stands at 350%. A healthy ratio is 150% or lower. Which means we have 200% of GDP's worth of debt to pay off (that is about $29 trillions, with a "T". Boils down to about $100,000 per capita, or $400,000 per family of 4).

2. Hollowed out industrial base: Almost every consumer item besides food, drugs and shelter is made somewhere else. Even in rare occasions something is made here, it is designed and engineered somewhere else. During the last depression, the US industrial base was one of the tops in the world.

3. Not enough brainpower left to build the 21st century economy: Jobs of the future need more college graduates, and yet we are going to graduate fewer students out of college. College is out of reach for many middle class families, and is only getting more unaffordable. More striking is the number of engineers coming out of our universities, which has steadily dwindled in the last three decades. The social scientists have defined what "math" and "science" our kids should learn (or not) in our K-12 system. So, many come out of high school unprepared for a technical career.

4. Global competition: The US was pretty much isolated with few other global competitors during the last depression. Trade was a fraction of what it is today, given the lack of jet, container, and surface transportation infrastructure. But since the internet took hold, competition in services became reality, adding salt to the wound, since competition in manufacturing has been lost already.

What about the solutions being talked about? I have heard the new administration proposing a massive public works program like the New Deal of the FDR days. I think the building of highways worked in the 1930s because it was one of the big bottleneck to internal trade. But today's infrastructure, especially in the area of communications, has figuratively flattened the world. That is why I think the traditional '30s style rebuilding won't work this time. Yes, we need to fix our roads, bridges and school buildings. Will it help the rest of the nation to be competitive when the recession ends? I think not. What is sorely needed is focus on unique value added technologies like clean, renewable energy, cleaner transportation technologies, and better wireless communication infrastructure. This will give us something of value that we can trade with the rest of the world in exchange for consumer goods, instead of piling up trade deficits.

But to do this, we need more unique technologies we can all our own, and which have a ready global market. Which means we need more patents. Which means we need more PhDs in Science and Technology, who can invent these technologies and file for those patents. Which means we need more K-12 student candidates who want to be PhD Scientists and Technologists. That will be the house that Jack built. We are missing the bricks for this house that are needed for the first layer of this house, so any talk about building the superstructure is likely to provide only superficial results.

I have not heard talk yet from the administration as to how we will accomplish this.