Recently, the term “new normal,” coined by the bond fund PIMCO, has made its way into common household vernacular. And, thanks to a continuingly polarized and hostile political environment, as well as the fervent “debates” on the economy and government spending that the American people are endlessly subjected to via mainstream media, this term wreaks insecurity, instills fear in the ordinary citizen, and fuels political, and potentially fascist (and, yes, I am referring to the Tea Party here) factions. However, is this “new” environment really new at all? Or, was the previous economic environment (the post-WWII period between 1945-2008) artificially abnormal?
The fact of the matter is, this new normal that many of us consider to be derogating the American way of life, is nothing new at all. The unrestrained growth and resulting fiscal security that created what we now know as the American way of life was the direct result of years of market advantages forged by the outcomes of the Second World War, sustained by the subsequent Cold War and the War on Terror. These advantages have blessed Americans with a higher quality of life than most of the world, but they are neither normal nor sustainable.
After WWII, to put it into pure market terms, we were the only shop in town. This created an artificial industrial environment that allowed for unrestrained growth and the expansion of the middle class. This environment is also responsible for the “American dream,” and, what most Americans have come to consider basic entitlements, chiefly, that of a decent retirement; a concept that has only been around for a couple of generations. The perceived threat to both by the new normal, combined with the romanticized memory of the American way of life during this period, has played a large roll in contemporary debates and has helped galvanize the far right in US politics.
Our whole economic establishment, however, was flawed from the get-go. Eventually, other industrialized nations caught-up, and we were found to be far less efficient than some of our counterparts. This led to rapid globalization (long held by conservatives as a destructive force, but in actuality, is the natural path of capitalism) and eventually, proved unstable. The strains in this dynamic were evident in the late 1990’s, but the full realization of the situation was delayed about a decade due to US involvement in the Middle East.
This past summer, economist Dr. David Laibson of Harvard co-authored a paper in which he argues that the fear associated with the new normal is overblown due to the nature of the subject itself, the economy. In it, he states that the economy will always revert back to its long-term growth trend; this is where Dr. Laibson and I agree. Where we disagree, however, is where the long-term growth trend lies. Dr. Laibson’s analysis focused solely on the longest period of relative economic stability (that of the post-WWII period) and, thus predicts a recovery in the economy within the next few years. It did not, however, take into consideration the historical factors that made such growth possible, nor did it account for long periods of erratic activity before the war. Given this, I believe that the actual long-term growth trend will be one of instability and, perhaps, minimal economic growth at best.
So, what might this “old normal” world look like for a 21st century America? Globally, the US will hold much less sway over foreign affairs. We simply can’t afford to keep operating militarily in a Cold War capacity. This is going to mean a much smaller Navy and Army, and thus, a retraction of the military industrial complex. A redefinition of the “American dream,” may also be necessary. For many families, this will mean one less car in the driveway, or keeping the one they have twice as long, or, simply, not have a car at all. No doubt, many of us will never own homes. Whether or not this is a negative is up to each individual to decide. Just as the pre-WWII generations, people will need to be more flexible professionally. The days of working at one job for 25-30 years and then retiring are over. And, retirement as we know it will only be possible for the few. The term “semi-retired,” more accurately reflects what is in store for the rest of us.
Some have perceived this dynamic as a bad one for the US. That the once great US will be reduced a “second rate” nation. It doesn’t have to be so. From a security standpoint, a lighter global footprint could potentially increase our security. In terms of the market, a more diverse and flexible work force breeds innovation. Fewer cars mean greater “localism.” And, with regards to retirees, the thought of losing some of the most knowledgeable portions of our work force while they are still capable seems illogical. The fact of the matter is, Americans will have to change the way we look at the world; we will have to be more flexible; and, perhaps, learn to live with a little less than the we have in the past.