Beware of bailouts and our Catch-22 economy

The current financial crisis is the start of something perhaps unprecedented in the last 150 years. Its impact on people with marginal and fixed incomes will be fraught with trouble. Its impact on the middle class will turn its members from a spending class to a debt-paying budget class.

Bailouts and short-term fixes might soften the blows in the early going, but our economy is in tatters not only because banks have become high-stakes gamblers, and not only because the deadly sin of greed has grabbed the mortgage industry by the nape of the neck and shaken all common sense right out of it.

The current crisis, I think, is the beginning of a profound economic and social shift, a shift in fundamentals, a tectonic shift of our own making, one that we might have avoided or at least prepared for, but tragically did not.

In the next decades we will be forced to make basic and radical changes in how we power our societies, moving from fossil fuels to other sources. This will cause further economic disruption, as will the inflation attached to our most precious and imperiled resource — clean drinking water. This is, of course, common knowledge to many, but apparently not to policy planners.

When you put the cost associated with changing weather patterns together with the virtual collapse of the credit economy, it becomes clear that all manner of social and personal priorities will have to change to accommodate realities that should have been foreseen.

The old economic system based on debt, transportation of goods over vast distances and a Catch-22 relationship between low wages, low taxes, crippling interest rates, gigantic accumulations of wealth by a few and economic insecurity for the overwhelming majority will no longer sustain itself. The American consumer is on the verge of no longer being the devourer of the world’s cheap goods.

Two interwoven strands of the future seem obvious. One strand will find us all struggling through a long transition period, shifting from one way of life to another, a transition that will be severe, with its pains and tensions unevenly and unjustly distributed. How we all survive that transition politically and ethically will depend on the personal discipline of each of us, and the creative leadership of those who represent us.

The second strand of the future involves a new economy, one that I believe is based on local markets selling local products to local consumers who make enough money to save their surplus, avoid as much debt as possible, and survive by keeping the financial viability of their local retail, manufacturing, agricultural economy afloat with local dollars. No locality, of course, can be sufficient unto itself. Trade is always necessary, transportation systems can become less costly with the help of time and invention, and fresh water is almost always contingent on others “upstream.” But frugality, conservation of resources and compassionate aid are not dependent on external sources.

Is such a transition possible to make without a social catastrophe to spur it on, without a Great Depression?

In the early days of the Cold War, humanitarian physician Albert Schweitzer presented his Nobel Prize lecture on the necessity of “creating a new mentality, an ethical mentality” that prized peace over war.

In pursuing such a goal, he spoke of “confidence” as being “the capital without which no effective work can be carried on. It creates in every sphere of activity conditions favoring fruitful growth.”

The same can be said of creating an economy that prizes conservation and frugality over waste, extravagance and debt. Credit will always be needed for emergencies and to smooth over transitions, for businesses and families like. Part of the pain of the current and future transition will come from a paucity of credit arising from the distrust that springs from abuses in the banking system.

The same can be said about creating a new economy based on living wages, necessary credit detached from luxury, necessary taxation to finance public needs, growth in savings and local spending, and keeping most money in communities where local products and services are sold.

This is largely a decentralized economy, with decentralized energy sources such as wind and solar power, and a reliably negotiated, conservation-minded view of clean drinking water as a shared necessity. Decentralization is not the opposite of globalization. The world needs global markets and global resource exchange. No locality is totally self-sufficient. Decentralization does mean, however, that local politics, local retail, local services, local energy supplies and local financial institutions take precedence over companies and institutions that drain localities of their wealth while urging overuse of credit to buy foreign goods from national and international companies that can undercut the price of local products and local producers.

What kind of confidence does a nation and a world need to build such a new system?

I think such confidence comes from a radically humane but highly conservative, if nontraditional, view of consumption and culture.

Truly conservative economics is the kind practiced by all people who think ahead, who do not spend beyond their means, who pay their debts, and who patronize local businesses, including local museums, libraries, artists, writers, and performers, wherever possible.

We can no longer have a Catch-22 economy based, essentially, on luring people into debt who do not have the proper income to support their debt because jobs that pay decently, allow for savings and produce needed goods for local and national consumption have been fed to the beast of globalism.

Schweitzer was right about confidence. We need an economy we can trust, one that reasonably mirrors our own personal way of doing business and handling our household accounts and savings. And we won’t get there with leaders selling little but fear. Only the profligate, the fraudulent, the undisciplined and the greedy would let their own personal finances run to ruin as our national economy has. Imagine running your business like AIG ran its.