There is an element to this discussion that is not present in the above post and that has to do with economic solvency. There’s been a lot of talk about how the BANKS could very well eventually prove to be insolvent, but that’s not the kind of solvency I’m referring to here. That’s financial solvency. I’m talking about economic solvency.
We all know that deregulation certainly contributed to the current mess, but it wasn’t the only variable. And we know that banks made loans in the face of stagnant wages, but that’s not the deeper variable of economic solvency I’m referring to here.
Financial solvency has to do with the immediate and measurable cash flows needed for an entity to meet currently maturing obligations. Economic solvency, on the other hand, is referring to the deep structural mechanisms in an economy which help to facilitate an efficient transfer of wealth from wages to prices and from prices to wages without the significant introduction of time-bearing instruments or worker exploitation.
Returning to the way things used to be is out of the question. It’s out of the question not just because regulation needs to be implemented. It’s out of the question not just because wages should be able to afford the new lending. But it’s out of the question because the old system is economically insolvent. It’s out of the question because the wages that we have today are not just stagnant and have been so since 1975, but they are also inextricably tied to the global marketplace and the consumer desire for the cheapest price. THAT is why we must learn austerity. THAT is why this is truly, as Don Henley sings, the end of the innocence. The American standard of living, barring any groundswell for protectionism, must conform to the rest of the world.