The New New Economy
The service and asset based "New Economy" didn't work out so hot
It sounded good on paper: Globalization meant that un-developed economies could become developing economies by manufacturing the things that would be needed in developed economies. Developed economies would provide services and capital to manage and fund new manufacturing and resource extraction enterprises in the Third World. A rising tide would lift all boats. The theory behind the New Economy made some sense.
Many of us questioned the sustainability and social justice of this model since developed countries would essentially be extracting wealth from undeveloped countries. It was labor-unfriendly. The surplus value of goods produced cheaply in China become WalMart's profits. On the developed end, were all the displaced factory workers in Akron supposed to become computer programmers and business consultants? Was an economy that did not produce its own socks truly viable? Plus, endless growth for the sake of growth is the definition of cancer, after all. Eventually, the system as envisioned would suck the planet dry. From an economic standpoint, it made some sense, but in the real world there were problems with the idea.
As it turns out, the New Economy was a really bad idea. Those jobs in Akron weren't replaced by better jobs, and a lot of the better jobs could be done just as well in Bangladore and Shanghai as in San Jose or New York. Adding insult to injury, the capital assets turned out to have been a mirage. If you don't believe that, ask yourself where the economic stimulus money has gone. Turns out, printing dollars isn't really that effective anymore as a way of stimulating the economy thanks to the New Economy having dumped trillions of them into the market in exchange for tchotchkes produced by de facto slaves in the Global South. You didn't really think that those multiple-hundred-billion-dollar annual current account (trade) deficits were sustainable, did you? The smarty-pants economists behind the New Economy, apparently, did.
The New New Economy
So where do we go from here? We need a New New Economy. Comparative advantage is a funny thing. At the end of the day, it is tied into the natural world and regional preferences. Colorado has a comparative advantage in the ski industry. Washington State has a comparative advantage in producing apples. California has a comparative advantage in producing fruits and nuts of all kinds. The fallacy of the New Economy was that entire nations could have comparative advantage in one area or another. It was too broad. The truth is, comparative advantage is almost irrelevant at the national level. The state or county level is where the differences show.
Here is what I propose: Local economies taking advantage of their own unique advantages to trade globally.
I like coffee and bananas, but they don't grow near me. Apples do grow in my neck of the woods, and there are also a lot of great universities around here. Somehow a system needs to be worked out such that people in our area could obtain coffee and bananas by trading our apples and educational resources. It would not need to be a direct trade. Money could be involved. At any rate, we would have to sell enough apples and tuition to people in other regions to pay for the things that we bought from other regions. Current account deficits would be limited -- by law -- in time and scale.
To facilitate the growth of these local economies, regional currencies would be developed. Those regional currencies would be fungible for a new national currency (because the dollar is kaput or will be very shortly). Each region would spur economic growth in its own areas of expertise or comparative advantage. The national currency would effectively make the U.S. a free trade zone, but enterprises would be able to work out their own terms in their own currencies. In this way, fiscal order and productivity would be rewarded since the most responsible regions would have the most desirable currencies. It would be a truly free, open, competitve market! The national currency would be useful in international trade and in national trade, but it would not have a monopoly like the dollar, which is becoming Monopoly money.
Regional banks would take hold, and they would be strictly regulated at the federal level. Profits and wages from regional enterprises would flow into those Main Street banks, and loans would be made based on the available capital, not on the basis of financial maneuvers in Singapore, London or New York.
In the New New Economy, global trade will still happen on a large scale, but it will be done on more fair terms. Local economies will thrive because the production of valuable goods and services will be necessary to obtain luxuries from "abroad." No currency will be able to rest on its laurels as the dollar did. Constant activity will be required in the form of work. It will be good.
This is not a thesis, just a blog post, so settle down, all you bigwig economists, then steal my ideas as usual.