At the same time, wealth is a fluid and relative thing. What we've lost -- if it doesn't reach the level of something that massively impacts current life, like a home or health -- won't be clear for a long time, and may even turn to gain, if we build on more sustainable foundations. That is, if our collective wealth is more equitably and efficiently shared, if we succeed in reforming education and rebuilding effective public safety nets and fostering innovation in sustainable industries. . Life is long, as Salman Rushdie characters bent on revenge like to say -- and so are our economic biographies.
One large set of variables in assessing economic losses is the potential upside of deflation, broadly understood. Deflation, as officially defined by economists, is both a very bad thing -- perhaps the main precondition of a true Depression -- and relatively modest in percentage terms. Like headline inflation over the last two decades, any official deflation we undergo is likely to register in low single digits.
But headline inflation has not captured a far more rapid inflation in the "Three H's" of economic well-being -- homes, higher education, and healthcare. Add to those high costs the increase of major risk in middle class American life -- job loss, loss of health insurance (or loss of adequate health insurance), loss of defined benefit pensions -- and we've clearly suffered a major "inflation" in the sense that solvency and security are more difficult to obtain than they were a generation ago. The convergence and bursting of our several debt bubbles has made it clear that much of our national wealth was illusory.
If real inflation has outstripped officially measured inflation, perhaps a more broadly understood deflation, enabled in part by good policy, will not only far outstrip any official cost-of-living deflation (or co-exist with official inflation), but actually make prosperity and security more attainable. The linchpins of economic well-being should become relatively easier to obtain:
- Housing: In my New Jersey suburb, 20 miles from New York City, small starter homes scraped $600,000 in 2005. How could even affluent young couples afford, say, a $550,000 mortgage? Probably by taking on some exotic interest-only loan, with the rate escalating in 2-3 years - taken on the assumption that the couple could then either refinance or trade up, financing a more expensive home with profits from the first one. In a year or two or five, that same starter home may cost $400,000 or less, with a mortgage -- if the couple can obtain one -- at a fixed rate under 5%.
- Higher education: I've never really understood the massive runup in college costs, topping out today at over $50,000 per year at prestigious private colleges. Today it's hard to imagine schools, themselves slammed by the fiscal crisis, lowering costs. What should improve fast, though, is the disgustingly exploitive privatization of the student loan business, whereby schools have steered students into loans with opaque terms and usurious rates, sometimes scraping 20% for students in trade schools training for relatively low-wage professions. Expanded opportunities to trade tuition aid for service commitments should also help to bring college within reach for many. At the same time, a swift, massive cultural shift away from all kinds of spending, stemming from economic hardship, should at least slow tuition inflation.
- Healthcare: Effective health insurance reform that provides affordable coverage for the uninsured and mandates adequate coverage of catastrophic costs will halt an enormous source of wealth destruction for Americans. If we can't get this done, and at least bring our healthcare costs and outcomes to the levels enjoyed by most advanced democracies, there's simply no hope for continued American prosperity. Can we afford it in the midst of the economic meltdown? As Obama asked in a Dec. 11 press conference: How can we afford not to?
- Debt and consumption: Harsher bankruptcy laws were supposed to discipline borrowers. Now, a massive wave of bankruptcies is disciplining lenders. In hard times, people will take on less discretionary debt and save more. That's bad for the economy short-term, but it will mean less money spent on debt service for many Americans. Debt servicing aside, spending less money on what you don't need makes you wealthier. And while vast numbers of Americans have been driven deep into debt and bankruptcy by circumstances beyond their control, such as uninsured or underinsured illness, there's no doubt that we've all been culturally inclined to spend more than we need to on nonessentials.
What's the point of framing up supernatural pseudo-choices? Only to get somehow at this: democracy's saving grace is the capacity to self-correct. In the past, the country has recovered from horrendous mistakes to move on toward renewed prosperity, and, as Obama likes to say, progress toward a more perfect union. The election suggests that American democracy has retained that capacity for self-correction. Will we be able to dig ourselves out the hole we've dug. Obama says "yes we can." For this long lovely moment, the country seems disposed to agree.