Headlines have been full of gloom and doom for some time; high unemployment, the housing industry in a depression, record government debt, governments dysfunctional, and on and on.
Fear-mongers and ‘big picture’ theorists are having a field day with it all.
The record government debt in the U.S. and Europe, the result of the massive 2008-2009 efforts to prevent the Great Recession from falling off a cliff into another Great Depression, can only result in an even worse catastrophe down the road, and an unbearable debt load on the next generation. Devastation is on the way.
But here’s something to be thankful for.
Those long-term doomsday scenarios that always pop up during bad times are the result of simply extending whatever is the current trend in a straight line into the future. They almost never materialise because they don’t allow for the changes that take place before they can materialise. In fact, they usually work out to the opposite extreme.
The examples are endless.
In the 1940s, by extending the trend of how fast population growth was taking over former farm land, it became undisputed fact that there would not be enough arable land to feed the growing U.S. population by the year 2000. The hunger and near starvation conditions of the Great Depression would become even worse.
However, farmers learned new soil management, new cattle feeding and breeding techniques. Science developed healthier seeds. Farm machinery manufacturers provided more efficient machinery. And the trend reversed to the opposite extreme of food surpluses, overflowing food warehouses, gifts of surplus grains to foreign countries, even subsidies to farmers to leave their fields unplanted.
For many years the fear-mongering scenario was that communism would soon take over the world. The USSR was a powerful nuclear-armed world power. Under Russia and China’s sponsorship, communism was spreading around the globe, even to the western hemisphere with its arrival in Cuba, and Cuba’s successful efforts to move it on into South America. The Korean and Vietnam wars were fought in attempts to halt its onslaught. But as is often the case the eventual reversal was created by the trend itself. In the process of its expansion, the untenable economics of communism were stretched past their limit and the trend reversed, even the USSR and China eventually adopting free market economics.
Failures of big picture analysis were also seen in the repeated fears regarding human survival, such as those that came about by extending the trends of polio, swine flu, Asian flu, AIDS, the depletion of the ozone layer, and so on.
In the 1980’s, the Reagan Administration used massive government spending and stimulus efforts to pull the economy out of the terrible 1970’s. Government debt levels grew to what were then frightening record levels. It was projected the U.S. government would be bankrupt by the year 2000, Social Security would be history, the next generation would face hard times as a result of the debt load. But the doomsday forecasters were extending the current trend, not able to picture the dramatic economic reversal of the 1990s that would reverse the budget deficits to budget surpluses.
By extending that new trend, big picture analysis then became forecasts that the national debt would be completely paid off by the year 2012, Social Security would be fully funded, and there would be funds left over for wider healthcare coverage.
But whoops. Wrong again. Conditions also changed before that long-term scenario could work out. The economy suffered two back-to-back recessions, a terrorist attack, the cost of two wars, and the previous budget surpluses reversed to the current new record debt levels.
So now the big picture scenario has reversed again, its advocates convinced by the current trend that there can be no outcome other than a catastrophic future.
I doubt it. I suspect that once again the seeds for another eventual positive reversal are even being planted within the crisis itself.
When World War II ended, economists warned that returning servicemen should not be discharged right away, but slowly over a period of years. Immediate discharge would have a devastating effect on unemployment levels and guarantee that the slow economy would plunge into the next Great Depression.
But the government rejected the advice and the servicemen were discharged immediately.
And rather than plunging into a Depression, the economy took off into the postwar boom. The returning servicemen had such pent-up yearnings for cars, marriage, homes, furniture, appliances, that factories could hardly keep up with demand, providing jobs in more than adequate numbers.
I suspect a similar pent-up demand is building within the current slowdown, among those who would like to trade for new cars, would like to buy their first home, or trade up to a larger one for their growing family, but continue to be forced by economic conditions to wait.
Within that pent-up demand lies the makings of another typical reversal from bad times to good. Perhaps even like the 1990’s, when the improving economy providing increased tax flows into the Treasury, grinding away at budget deficits until they became surpluses, and the big picture analysis reversed to seeing only good times ahead.
Unfortunately, first we have to deal with the current gloomy outlook.
But I believe longer-term we can at least be thankful for the history that reveals ‘big picture’ analysis and fear-mongering scenarios almost never come to pass, and this current gloomy and difficult period will also end.