It’s been a decade since 9/11, with its terrible rumblings shaking the foundations of our free and open society. That is reason enough to pause, but there is another anniversary that is coming up as well. This is the third anniversary of the meltdown on Wall Street that has defined our economy ever since. As the kids go back to school and the northern hemisphere starts to tilt toward the chill of fall, this is a reflective time. Knowing how we got where we are may not be a great predictor of where we will be in the future, but the straight line between then and now is all we have as a guide
In 2008 the collapse of Lehman, Merril, AIG, WaMu, and a few others came as such a surprise that very few people thought that it was part of a new Depression. Nearly everyone who had access to a media outlet expressed surprise that it could even happen. The perspective of three years is enough to give us some understanding as to how significant this was, however, and how it might fit into a bigger history.
Three years ago it was popular to talk of a “housing bubble” as an isolated incident that was causing trouble for a few homeowners out on the fringes. We now know that this was part of a larger bubble in technology, finance, housing, and briefly even commodities that washed over our economy. While it has yet to be a completely accepted popular opinion, more people every day are open to the notion that decades of shuffling along through good times created a deeply held belief that we could all have something from nothing without a lot of hard work.
Since the collapse the concept of “Recovery” has been held out as an inevitable event, something right around the corner. It hasn’t happened for many people, largely because we have yet to achieve Restructuring – a new economy that is stronger than the old one that fell apart three years ago. Recovery is, after all, not an event but a process.
The reason this anniversary is important lies in the one that overshadows it, I believe. History will probably start this Depression in September 2001 for many reasons. The most important single reason is that our nation – and the world – spent a solid week or more not doing anything but huddling together and trying to make sense of what happened.
A lost week may not look like much, but to a fragile economy built on a massive bubble it was a lot. After 2001, the US government ran massive deficits to finance two wars simultaneously and cut taxes at the same time. Alan Greenspan’s Federal Reserve held interest rates low. American cashed out $1.8T in home equity between 2001 and 2008, peaking at $354B in 2006 (or about 3.4% of GDP). Yet for all this tremendous outflow of cash we had scant inflation and little economic growth – and what little growth was announced has since been revised heavily downward. Unlike past Depressions, this one was buried under a big pile of paper for a long time.
Three years on, it’s become fairly well accepted that this cannot continue. What exactly we can or should do is still not obvious and it’s unlikely it could possibly be. We still have a poisonous political divide that has prevented us from even discussing our priorities in a realistic and open way, let alone setting and satisfying them. For all the perspective time can give us it’s up to all of us to allow it to settle into our guts as wisdom. That is unlikely to happen until we absorb the best lessons from our history and cross the lines we set up in what seemed like happier times.
Whatever the next three or ten years might bring us is, to a large extent, up to all of us. We can look back on these anniversaries and rightly feel sad at the terrible loss we feel just as we can feel the chill of September in the air. But what is most important at this time is moving forward, together, and making an effort to understand what happened and what we can do about it.