I just finished reading a fascinating piece in Vanity Fair (don’t judge!) by Joseph E. Stiglitz on the parallels between the Great Depression and current economic Long Slump.
Stiglitz argues that it’s not the banking system, but rather a myriad of factors, including a systemic shift in the type of economy we have and the types of skills we have to support it, that’s driven this depression. His recommended solution follows this thinking…
The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one.
It’s an interesting perspective that seems to buck what I’ve considered the logical approach around austerity in a down economy – when you have less to spend, spend less. The key, it seems, is the focus on creating new skills for a new economy rather than blanket spending into the current one.
Stiglitz notes that massive government spending in preparation for World War II is what largely contributed to our recovery from the Great Depression. His theory is that an unintentional side-effect of this spending is that it radically reshaped the labor market to meet the needs of a new economy. This, he argues, is what we need today as well.
In years past, this may have been easier. Technology was simpler. Learning curves were shorter. How do we make this happen now?