Michael Mandel reveals that the real problem with the economy is that long accepted patterns of cross-border technology transfer, trade and finance are simply unsustainable.
…here’s the problem:
At the same time Americans were borrowing, their real wages were falling — and not just for the least educated. By BusinessWeek’s calculations, real weekly earnings for college grads without an advanced degree have dropped every year since 2002.
You can’t pay back rising debt with falling wages; something had to give.
The first thing that broke were subprime mortgages, given to less creditworthy borrowers. But once investors started to look, they realized that the entire global edifice was built on an impossibility.
The bad news is that government injections of capital into banks around the world can slow the damage, but they cannot fix the basic problem. The global economy has to go through a readjustment process that will be difficult even if policymakers can restore confidence in the financial system.
Policymakers should stop talking about investor confidence as if it exists in a vacuum. Instead, they should focus on the real goal of stimulating the creation of innovative new goods and services that the U.S. can produce and sell on global markets. That would reduce the amount of borrowing the country has to do, and help create a sustainable global economy.
This crisis is not any fun. But if it shakes up companies and government, and forces them to focus on innovation, the end result will be stronger, more solid economic growth.