An Economy About Nothing

Hat tip to my colleague Mary Connor for the term “nothing-based economy.”

Mary’s source used it to describe (I think) an economy that is all image and perception—in a word, “branding.” I’d extend the term to describe an economy based not on creating tangible goods and useful services that can benefit people and enrich their lives (in both senses of “enrich”), but one in which wealth largely involves a small group of people shifting intangible assets around for their own renumerative benefit. Take mortgage-backed securities, please.

(You can extend it even further to spending on things like knickknacks, celebrities, diet products, and (at the “upscale” end) various types of interior décor items that cost a lot but don’t really add much to one’s life. All of which can be categorized simply as “worthless crap that briefly makes you feel good.”)

The best critique of the nothing-based economy that I’ve seen comes from Steve Randy Waldman, from his blog Interfluidity. (Warning: It’s somewhat economo-geeky. Stick with it and you’ll be rewarded. The comments are worthy, too.)

Here’s the abridged version of Waldman’s analysis. The U.S. economy is currently built primarily on consumption, not useful production. Thrift is not being rewarded because for most of us, saving and investment don’t seem to be paying off. We aren’t doing better than our parents. Often, we’re not even doing as well.

Meanwhile, the U.S. financial system, which is supposed to be investing in future wealth, is instead generating and skimming off froth:

Our financial system is failing spectacularly because it erred grievously. It built homes and roads and sewers that oughtn't have been built, it "invested" in vacations and plasma televisions, and it paid itself handsomely for doing so. That's not a problem we can spend our way out of. To fix the financial system we have to change it, not rally to its support. We will know we've put things right when thrift is something we can celebrate . . .

We can overstate all this. For all of the outsourcing and global supply chains, it’s not as if we’re not making anything worthwhile in the U.S. In Minnesota, we only have to look around at many med-tech businesses and specialty manufacturers that are sending truly useful products across the country and around the world.

But if our economy is to truly grow—and grow for everyone—our financial system needs to invest less in toys (physical or financial) and more in capital-intensive but ultimately more productive uses.

Your blogger’s own choice: high-speed cross-country trains, with locomotives using more electricity than diesel fuel. Though air travel will certain never disappear, its limitations are becoming clear. But high-speed trains, which have worked so well elsewhere in the world—that would really be something.

Comments

[Alan Tenenholtz]

I whole heartedly agree that we need to start moving jobs back to American and actually start producing "real" products in the U.S.

The only problem is that if we start moving away from a consumption economy, then why do we need all those manufacturing jobs. All those people in those new manufacturing jobs have to produce products for someone. We all know U.S. made products aren't going overseas in any large numbers anymore, just look at the trade deficit. So if Americans stop consuming, there is no need for those new U.S. works to produce more.

We need to find that middle ground...Everyone isn't owed every material good, but we also need people to buy goods in order to have the jobs that employ more people, thus allowing those employees the ability to purchase goods etc. It's one big loop that today has a break in it and we need to figure out how to get it back together and get the flow started again.

[John Clawson]

Hallelujah! and thanks for this brief essay....my wife and I have been talking about this "nothing" economy for years and thought we were alone in doing so....yes, we are making things in this country, but no, there is not much substance here.....we really don't make the things our fathers and grandfathers did: machinery, cars, steel....we buy in whole or in part from others, for the most part....our century (or more) old sewers and water systems are not being replaced/updated, our subways and transit systems are often old and decrepit....new thinking about new applications and new systems is non-existent for the most part....yeah, there are ideas and concepts galore, fabrication of medical machinery is ours here (for now anyway). But virtually everything we touch on a daily basis was made in some other country; many of the jobs my kids and yours don't want to do are done by people from other countries--either here or in some other country. There could be no better indictment against what has become the American economy but that we have been brought to our knees by a phoney real estate economy--slick people selling slick home deals to slick capitalists. A nothing economy?? You betcha, and below the surface, hundreds of thousands of young men and women who don't want or can't do the jobs we need to have done. But they can write songs, dance, create 30-second movies on one computer social page or another, create/play electronic games and dream of becoming professional football/basketball/baseball or hockey stars. We're on our way, economically, OK.....But where is it we're going when there really IS no economy to speak of?? (GO, bullet trains!!!)