No More Economic Bubbles - Let's Focus on Fundamentals

by Odysseas Papadimitriou on July 23, 2009

economic-bubbleOur country’s economy has been operating from bubble to bubble.  From 1996 until 2000, we were in a tech bubble.  Our faith in the financial potential of the dot com industry was boundless, though it ultimately proved ill placed.  From 2000 until 2006, we were in a housing bubble which, when it burst, laid the foundations for the current recession.  During these periods, the country placed its economic hopes on new, seemingly plentiful, frontiers that promised new means by which to make money.  Older values were made to seem, by comparison, out of touch and out of date.  As a result, we, as a nation, allowed ourselves to slip further and further away from the fundamentals necessary for a healthy economy.

Now, we stand on a precipice.  We could create another of these economic bubbles to put our financial hopes into – an option as illusory as ever – or we could find some way to return to the fundamentals that have, historically, made our nation’s economy strong.  Over the last decade, we allowed our exports to slip and made our economy deeply reliant on imports from the rest of the world.  We have let the trade deficit grow too wide without finding new products or new technologies to export, and as a result have found ourselves without a significant industry to insure future success in the global economy.

Our politicians are failing to recognize that we have a fundamental breakdown.  As Americans, we are offered, in general, two solutions:  the first, the Democrats’ solution, is to increase spending, and the second, the Republicans’ solution, is to cut taxes.  Both of these solutions are meant to artificially return our economy to its pre-recession days, but both rely on false premises which have led us to our current crisis.  They do nothing to transform our economy and reverse our trade deficit.

To sustain our economic superiority we only have two choices, both different than the ones we have just outlined.  Either we must find something new that the rest of the world wants to buy from us, or we need to find a way to buy less from the rest of the world.  Either increase exports or decrease imports; it’s that simple.  Building roads and fixing bridges isn’t going to affect imports and exports, and cutting taxes isn’t going to bring transformative new technologies and services to the market. 

We agree with the government’s decision to jump-start the economy so as to prevent the recession from spiraling into a depression, but continuing to spend money towards this end is a waste.  These ideas are simply not new and they offer no potential for economic transformation. While projects like these put people to work, they don’t solve the fundamental problems that plague the nation’s economy.  The solution to our dilemma is for the government to curb spending on random, cosmetic and insignificant projects, and to concentrate its spending directly on a new energy industry.  We need a ‘Manhattan Project’ that will make America energy independent within the next 5-7 years.  Such a project will not only significantly reduce America’s reliance on imports, but will also give us innovative technologies to export to the rest of the world.

When we see the government’s money going piecemeal towards projects which have no discernable long term value, it worries us because those valuable resources are being wasted.  President Obama needs to rally this country and its leadership towards an alternative solution that will replace those currently being supplied by both Republicans and Democrats.  The mobilization of this country’s resources around the creation of a new industry has for the length of history been the nation’s method of insuring its economic health.  From tobacco and whaling to railroads and aviation to atomic energy, aerospace and military technology, we have stayed strong because we have found something new to sell to the world.  It is time for our president to direct the nation’s attention towards a new ‘Manhattan Project’, rather than letting our nation’s recovery unfold in this haphazard fashion.

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