Five years later stability has more or less returned. People around the world are rebuilding. However, the loss has been huge and long-lasting. People have had to adjust to a “new normal”, which is much less prosperous than the “old normal”. The physical damage takes a long time to repair. Even worse, the people who died are not coming back — and all their skills, ideas, and other contributions to the world are irrevocably gone.
So why are we slashing, rather than increasing,public investment — in schools, public health, infrastructure, etc. — and welfare spending? Don’t say that we cannot afford to do such a thing
Is the universe we actually inhabit similar to that one? Certainly, America and Europe are now much poorer than they would have been, absent the crisis that hit in 2008: the US and the Eurozone are each estimated to have lost $850 billion or more in economic output. Moreover, growth in both areas remains low (and of course Greece and other Eurozone countries remain deep in recession). But do we, like the inhabitants of the parallel universe, have to accept these low (and even negative) growth rates as a “new normal”?
In the universe we actually live in, no meteors struck the world’s rich countries in 2008. The world did not suddenly lose a large part of its physical and human capital. So why should the new normal be any less prosperous than the old normal?
You might say that what suffered a big shock was not the world’s capacity to produce, but rather the demand for goods and services — and, with it, the incentive to invest in new capacity and workers. But what does this mean? Human need did not disappear. People still need food to eat, houses to live in, schools to send their children too, doctors to treat them when they are sick, and so on.
People in the parallel universe have real problems. Their capacity to produce has been diminished, and as a result people struggle to meet their needs. In our universe, however, productive capacity has not diminished. On the contrary, a lot of productive capacity is going unused: millions of people who are willing to work are unemployed. So why are millions of people struggling to meet their needs?
You might think that the answer is obvious: it’s the money. In the wake of various burst bubbles, individuals, businesses and whole countries are broke.
In reality, however, money answers nothing. Money has no intrinsic value. Its value consists only in that people agree to treat it as a valid claim to goods or services. The institution of money and prices is just a convention for social coordination, and what we face right now is a massive failure of coordination. On the one hand, we have unused productive capacity, because of lack of demand. On the other, we have people who lack access to essential goods and services. So why not correct this failure, by giving people claims to unused productive resources — i.e., by giving people money?
So why are we slashing, rather than increasing,public investment — in schools, public health, infrastructure, etc. — and welfare spending? Don’t say that we cannot afford to do such a thing. Unlike in our parallel universe, in the actual universe we live in there is no shortage of productive resources. And, while an individual Eurozone country like Greece can run out of money, the Eurozone as a whole cannot — it prints its own money.
What about the idea that unemployment is here to stay because of automation — because the machines are stealing our jobs? This is no answer either. Suppose that there really have been great leaps in technology in recent years. Then it simply turns out that we have even more productive capacity than we thought. So our failure of coordination is even worse than we thought!
Of course in our universe too we face some difficult problems. The Earth is getting warmer. Antibiotics are losing their power. These are problems that really are hard to solve. My point here is just that the never ending depression is notone of those difficult problems, and neither is it a “new normal”, that we simply have to accept. On the contrary, it is a political choice.