The Shape of This Recovery

I have been reading some interesting pieces on the outlook for economic recovery. The more enlightened pieces, those taking into account how it was our current downturn became a "bubble", indicate that the economy is not likely to return to the way it was; nor would we want it to.

One thing to realize about the difficulties we have seen in the past year is that the economic euphoria we experienced, and came to understand as the norm, was an illusion. As the economy heated in the early 2000's, much of people's economic gain was based on home-value. It became an ATM, of sorts, driving cash consumption in the economy through the widespread availability of financing.

The universe of information available on the state of finances, corporate, personal, and public, indicate that incomes actually rose very little. People borrowed on their homes, purchased homes they couldn't afford, or speculated in real estate markets (assuming an eternal price appreciation). Even those that did not get involved in real estate likely exploited the credit bubble, through credit cards - how many of us have an outstanding balance? All of this credit resulted in heavy consumption, the principle driver of our economy. But it was not based on real income, so it was bound to find a cieling. At that point, the cashflow in the economy slowed significantly.

There are two parts to our dilemma here: 1. Consumption was based on the consumption of either previous savings (ie home equity) or future cashflow (ie credit cards). 2. Investment was principally in speculative markets, not in productive assets, not in projects that produce economic value.

These two facets resulted in a diminished ability within our economy, on a national basis, to be economically productive.

I would propose that economic growth and well-being is derived from investment in productive assets. Assets that, through their use, create real cashflow and income. Therefore, economically speaking, we will not see economic recovery until people begin to value investment in productive assets.

This is the reason that the economy isn't going to just recover into the state it was three or five years ago. That economy was not based on feasible economic practice - it was a shell game, a hope, a delusion.

An economic recovery that has long run potential will likely look like something completely different. Take out a black magic marker and mark a big X over all of the economic charts and expectations we have, and start fresh.

Don't think so much about why there are no jobs available, or why they will only pay you x amount. Think about how you can create value - think about the value you add to that business. Your creativity, not in the artistic sense, but in the economic activity sense is what will create the economic recovery that we all expect will come from someone else.

What are the things that we as a community can do to generate economic activity?

What are projects that we as a community can engage to make our economic future more stable and secure?

What do we need in the community for there to be economic well-being?

How can we develop these resources together?

Those are a few of the questions that I think will drive our economy locally - the same kind of thinking will be required nationally, but the people must start somewhere.