This week the Dallas Federal Reserve released a National Economic Update with the pithy title, The National Economy: More of the Same (Atkinson and Koenig, June 19, 2012) .
Not surprisingly, given the title, the report finds that the future of employment and GDP growth probably will not change much. Real unemployment is holding at around 16% and GDP is essentially flat (BLS, June 1, 2012).
The real estate craze of the 1990’s and early 2000’s was the last gasp of the industrial economy. Home construction was the last powerhouse of the industrial economy just prior to the onset of the Great Recession. Factories were long gone and although consumer spending was a major economic mover, it was directly dependant on the housing market.
When the hosing bubble burst, there was nothing left to generate wealth or create jobs. And the housing market is never coming back.
There are still millions of homes still underwater, and millions of houses in foreclosure or on the verge of it. Banks are still holding millions of homes hoping for a rise in prices. Yet we continue to hear that real estate is on the verge of recovery, as if a bit of stability in real estate will bring back the old industrial economy.
There is no way for the housing market to recover. Laws have changed, loan standards now eliminate low income earners, social values about real estate have changed and few have enough money to buy a house tody. According to Charles Hugh Smith, a professor of science at Western Kentucky University, “The only age group whose incomes continued rising during the past five years is the over 65 cohort--the very group who is "downsizing" or selling their homes to live in assisted living.” (Smith, June 20, 2012)
Without jobs and rising income there will be no housing market recovery. And there is nothing on the horizon promising jobs. Without jobs, there will be no widespread economic recovery.
In a news story about the effect of returning veterans on local economies the best that could said was this:
“… some states and occupations will benefit from the influx of more civilian workers with defense-related skills. For example, in cities such as Detroit and Las Vegas, the number of workers for each job opening is about five to one, compared to Washington, D.C., and Boston where there are one or two individuals for every job…” (Tahmincioglu, June 21, 2012)
Think of it – we are now at the point where having twice as many workers for each job is a cause for optimism and gives bragging rights over places where there are five people for each job.
Here is something else to think about. Kids who were 12 years old in 2006, just before the onset of the Great Recession, are now turning 18, graduating from high school and entering the adult world. Twelve years old is about the age when our brains begin to take on adult styles of thinking. Many of the new adults entering the world this summer will be the last to have an adult memory of life before the recession. They will be able to remember a year or two of a world in which money was as close as the next re-fi on their parents’ house, and “irrational exuberance” was a normal state for most people. Next year there will be even fewer young adults who can remember those days. Just a year or two later young adults entering the work force will have no accurate memory of what life was like before the Great Recession.
When Julius Caesar crossed the Rubicon river with his army to march on Rome and seize power there was no turning back; he had reached a point of no return. The only course was to move forward and create a new Rome.
We have crossed our Rubicon. There is no going back to the old industrial economy. We can only move ahead and create a new economy, one that has never existed before. It is hard to say exactly what will drive the coming economy. Nothing seems to be waiting in the wings, poised to generate the vast amount of activity needed to bring wealth, work and jobs back to the same degree they were in the 20th century.
It will not be government. Although tax money can be used for short-term job creation by injecting cash, tax money is limited because it is generated by businesses creating wealth. Without an expanding economy, government goes broke. For the last several years, most governments have been simply creating money out of thin air, calling it a deficit and hoping for a miracle to balance their budgets.
That works for a while, but eventually the mountain of debt becomes so high that confidence in the ability to repay is lost. This is playing out in Greece, Italy and Spain. The challenges currently facing the European Union demonstrate how well dependence on tax receipts works as a permanent economic driver.
We have heard about a knowledge economy, and while information might sustain an economy, it has not proven powerful enough to create one. The same is true of the internet. It works well for moving ideas and data, but it is only a tool of knowledge, and does not create material wealth.
There is one possibility. It sounds as outlandish and improbable to our ears as the idea of automobiles burning refined liquids, and requiring tens of thousands of miles of paved roads sounded to people in 1912. The idea that automobiles would create such efficiency that the economy would boom was invisible to them. They could not conceive that goods and supplies could move faster, farther and much more cheaply by gasoline than with horsepower. The fact that an huge infrastructure – refineries, paved roads, refueling stations, rubber production -- had to be built to accommodate the internal combusting engine seemed to make it a non-starter.
So what is it that promises to build a new economy?
The commercialization of space flight and it is already underway.
Space tourism has been quietly moving forward for years. Richard Branson and his Virgin Galactic project is selling tickets for the first passenger space flight, and Excalibur Almaz is planning the first commercial flights in 2015. Their goal is to offer scheduled Earth – Lunar orbits ten years later.
The DreamUp project is already underway. It is selling space in the International Space Station, but it is notable because you can apply your American Express membership points towards purchase. ArduSat project is using Kickstarter, the internet based crowdsourcing venture funds system, to raise funds for a time-share nano-satellite business. Yes, they want to launch tiny satellites equipped with a range of sensors into orbit and sell time on them to anyone with a bit of money.
The thing that is notable about these kinds of ventures is that although they don’t offer anything dramatic on their own, they open space to the average entrepreneur. Anyone with an idea for a space-based business will soon have the tools for business research and proof of concept demonstrations.
But the really big news is Planetary Resources, a venture funded by James Cameron, the founders of Google, and a host of successful and well heeled space entrepreneurs. Their idea is to mine asteroids not only for the materials needed to construct spacecraft, but to mine the water needed to fuel future space flights. They want to corner the market on the space-based gas stations.
The exciting aspect of this is not the ambitions planning, but the way in which the company is generating enthusiasm about its mission. They are also using Kickstarter to generate funds, but not because this billionaire club is short of cash. They are bringing the business of space business to the average person. The company has been “overwhelmed” with interest from people who want to be involved in the business of space. They are leveraging that interest to create even more by soliciting marketing ideas on their Facebook page.
None of this is going to bring back a roaring economy any time soon. Lifting the world out of economic depression is time consuming by itself, and the emergence of a space industry is measured in decades. Most of us need to resign ourselves to figuring out new ways to scrape out a living using Earth based for a while.
But not those young adults I talked about earlier who have a declining memory of life before the Great Recession. They may not remember the riches of that past, but they will not be constrained by memories of the limitations of the Industrial Age, either. For them there is no going back to an industrial economy and the space industry will be the logical next step. What a future that will be!
Atkinson, T, Koenig, E. (June 19, 2012) The National Economy: More of the Same. National Economic Update. Federal Reserve Bank of Dallas. Retrieved form: http://www.dallasfed.org/research/update/us/2012/1204.cfm
BLS (June 1, 2012). Table A-15. Alternative measures of labor underutilization. Retrieved from http://www.bls.gov/news.release/empsit.t15.htm.
Smith, C. (June 20, 2012) The Housing Recovery: Based on What? Of Two Minds. Retrieved form: http://www.oftwominds.com/blogjune12/housing-recovery6-12.html
Tahmincioglu, E. (June 21, 2012). Defense cuts could further dim US jobs picture, Life, Inc. The Economy and You. MSNBC.com. Retrieved form: http://lifeinc.today.msnbc.msn.com/_news/2012/06/21/12321748-defense-cuts-could-further-dim-us-jobs-picture?lite