Monday 1 April 2002

Pic of the day: It may still be a while until we have robots doing the housework, like in this picture from The Sims. But at least the Japanese already make robot dogs.

Sideways into the future

I know I've touched on this before, but I find it really fascinating. It has to do with macro economics, of course.

I have ample reason to believe that the American recession is not over, despite the official figures. Most notably, consumer spending has been kept artificially high by gradually lowering interest rates. One effect of lower interest rates is that property prices go up, and especially homes, which fluctuate less than business property. (You can close down a company, start a new one, expand and contract much faster than you can a family. Good thing too.) Since most people own their own homes (around 2 out of 3 families in the USA, more in more egalitarian countries) this means their wealth has increased without them lifting a finger for it. The increased wealth can be made into cash by refinancing into higher loans for less pay. The effect is the same as a solid extra paycheck. Presumably a lot of consumers have already cashed this in during the "recession".

The flip side of this is that when interest rates go back up, home prices will eventually slump, while people now pay more of their paycheck to the bank – money spent before even getting to the shop. The net effect is that you can spend less than you earn, instead of more. Even if managed very carefully, this means we won't see a rapid economic recovery, but a sideways slide while investment gradually replaces some of the consumer spending. And why invest if people are spending less? The instinctive response would be to invest less too. The only way out of this is export-led growth. Actually the USA can do this by simply replacing some of the import with domestic production. They can do this by setting random tariffs on imports, like Bush just did with steel; but this will lead to retaliation and hurt their export in the same measure or more. The alternative is a weaker dollar. This will raise the price of imported goods, making local alternatives more competitive. But it will also further hurt the consumers, through higher prices.

***

As you can see, there is simply no magic wand, no silver bullet, no cure- it-all. You have to wait for productivity to catch up with the wild spending of the 90es. Even with modern technology, this will take years and years. Expect a Japan-like stagnation. This is not really such a horror.

The Japanese economy has been in recession more or less continually for a decade. This does not mean that people are all on the street begging for a few grains of rice. As a democratic and highly developed nation, Japan has distributed the costs so that the common man and woman is only slightly worse off. They may not be able to spend quite as freely, but on the other hand the quality of goods is improving all the time. Electronics in particular pack a lot more punch for the price. During the boom years in the 1980es, mobile phones were something important- looking people talked in. Now housewives and children use them to check time-tables, send e-mail and download comics. (Japanese mobile services are a lot more advanced than their American and even European counterparts.) High quality digital cameras are cheap and commonplace. And of course, computers and game machines just keep improving.

As improved electronics are applied in the industries, higher quality goods become available also in other sectors of manufacturing. And not least, small batches of "personalized" goods become available at nearly the same price as mass produced goods, as long as they are varieties on a common basic theme. Today you can order a PC tailored to your wishes at little or no extra cost. The same trend is now hitting cars, and should also be applicable to furniture.

Speaking of improved electronics: As mass produced voice recognition chips hit the market, even the middle class will be able to issue orders to their cars and TV and stereo. It will just be simple standard commands like "TV turn on" or "Stereo play random CD" but it will be cool and well worth the cost of a couple large hamburger meals. Hey, remember the days when you had to turn on the outside lights yourself at nightfall and turn them off in the morning? And when you went on vacation, burglars could tell at a glance. It's a small thing ... but once you've been there, you won't go back.

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It is important to make this clear: An economic stagnation is not a standstill, but a sideways slide into the future. Today's Japanese don't wear the clothes they bought in 1990, now mended and darned for ten years. They still buy new clothes as the fashions shift, just like they used to do. They just don't buy more of them per year than they did, while before they bought more and more for each passing year. To quote the cartoon character ALF in his new year resolution: "I am not going to eat any more. But not any less either."

If our politicians can refrain from doing really hare-brained stupid things (and this is a big if) then we can slide quite comfortably into a future that is better than today in so many ways. We don't need to grow and grow and grow forever. And even if we do, perhaps that growth should be channeled to those who don't already live in luxury, but who honestly try to earn their own living as far as health permits. While the rest of us slide on, for a while.