Tuesday, February 15, 2011

Can the Economy Be Saved by Dirt?

It’s easy enough to talk about wealth creation; it’s far more difficult to create wealth. This is even more true for people who live in a culture that values meaningful experience over industry and hard work.

So says David Brooks today in The New York Times, in a must-read column. Link here.

As Brooks sees us, we believe that the good life involves aesthetically pleasing and ethereal pursuits. We are more interested in good, clean fun, than in hard work. We are convinced that once we purge the system of waste and corruption the economy will once again become an engine of growth.

How many Americans were scandalized, even horrified, by the Tiger Mom because she did not seem to allow her children to have the kinds of fun experiences that are now our birthright?

In many ways today’s America feels contented and complacent. Most people believe that the worst of the financial crisis is behind us, and that we should now get ready for a new prosperity.

Brooks' meditation on these themes is based on a recent ebook by Tyler Cowen: The Great Stagnation.

As Cowen and Brooks see it, Americans have overcome the “materialist mind-set” that identified happiness with hard work and wealth creation.

We have come to believe that technology allows us to live better and more meaningful lives without really creating very much new wealth.

We sit around complaining about the rise of the new China, but we are not really willing to revive the now-dormant Protestant work ethic.

Brooks is entirely correct to see that our pundits, prophets, and public intellectuals have produced this shift in cultural values. A culture that excoriates the Tiger Mom for child abuse is hardly ready to compete against China and India.

To make his point, Brooks creates a thirtysomething fictional character and names him Jared.

Jared’s grandfather was an entrepreneur. He founded a company that built brake systems; thus, he created wealth and employment,

Jared organizes conferences that promote lifelong learning and blogs about modern art.

Jared sells experiences, and enjoys his life. Yet, he does not produce very much wealth and his work does not create very many downstream jobs.

Brooks writes: “As Cowen notes in his book, the automobile industry produced millions of jobs, but Facebook employs about 2,000, Twitter 300 and eBay about 17,000. It takes only 14,000 employees to make and sell iPods, but that device also eliminates jobs for those people who make and distribute CDs, potentially leading to net job losses.”

Jared is worried that his work his not producing very many jobs. “He also worries that the Chinese and others have a material drive that he and his cohort lacks. But he’s not changing. For the past few decades, Americans have devoted more of their energies to postmaterial arenas and less and less, for better and worse, to the sheer production of wealth.”

How did the Jareds of this world learn their dysfunctional value system? Brooks sees that the fault lying in the educational system: “During these years, commencement speakers have urged students to seek meaning and not money. Many people, it turns out, were listening.”

Of course, commencement speakers represent all of the educators who have taught these values to the students in their classes.

It almost feels as though the younger generation has been drugged. Young people care primarily about how things feel. When they discover that they are losing out, they refuse to accept the verdict of reality.

A generation that knows that its approach is not working, refuses to change. In highlighting this point, Brooks points to a culture that discards pragmatic considerations, like trial-and-error.

As Cowen and Brooks point out, we have also come to believe that we are so rich in meaningful experience that we do not have to worry about paying for things.

Therefore we live beyond our means; the government lives beyond its means; and we assume that we will receive some kind of ultimate reward for having discovered how best to enjoy a life that is not burdened with excessive labor.

Changing the culture and its values is no small task. That does not prevent me from offering a few ideas for how we might restore the value of wealth creation.

I recommend that we focus less on the ethereal world of great ideas and technological innovation, and get back to basics. I believe that the cure to our problems lies in: DIRT.

We are so obsessed with being clean-- as in clean energy-- that we have overlooked the fact that the energy business is dirty. We know that we need to rebuild our infrastructure, tunnels, roads, and bridges, but building infrastructure is a dirty business.

Even the food that we eat comes to us from ... dirt.

When I say that DIRT will set us free, I envision a world where people value mining and agriculture.

Please do not imagine that I am recommending even more government stimulus spending. The first Obama stimulus talked about infrastructure spending without delivering much of any.

The private economy is more than capable of rebuilding America and feeding the world. It would be doing more of it today if the government had not gotten into the business of crippling it with regulations and lawsuits, the better to make it all look and feel clean.

The world is short of food. Food riots are breaking out. The prices of farm commodities are shooting up.

What is the American response? In California, the courts have shut down one of the nation’s most fertile farmlands in order to protect a three-inch long smelt.

Victor Davis Hanson explains: “On the western side of the Central Valley, the effects of arbitrary cutoffs in federal irrigation water have idled tens of thousands of acres of prime agricultural land, leaving thousands unemployed. Manufacturing plants in the towns in these areas — which used to make harvesters, hydraulic lifts, trailers, food-processing equipment — have largely shut down; their production has been shipped off overseas or south of the border. Agriculture itself — from almonds to raisins — has increasingly become corporatized and mechanized, cutting by half the number of farm workers needed. So unemployment runs somewhere between 15 and 20 percent.”

He continues: “What an anomaly — with suddenly soaring farm prices, still we have thousands of acres in the world’s richest agricultural belt, with available water on the east side of the valley and plentiful labor, gone idle or in disuse. Is credit frozen? Are there simply no more farmers? Are the schools so bad as to scare away potential agricultural entrepreneurs?” Link here.

Of course, this story has not been hidden from public view. Everyone knows about it. The problem is: No one much cares. There could not be a better example of our dysfunctional value system.

At a time when agricultural commodities are becoming increasingly expensive, why kind of mindset shuts down agriculture in order to feel good about the environment.

Our energy infrastructure is not in very good shape. Recently, Texans were forced to deal with rolling blackouts. Other parts of the country have had blackouts. Surely, many more are to follow.

America has gotten itself into the position where it is not going to be able to provide enough energy to keep the country moving.

For those who think that we should build new factories and gin up our manufacturing base, where do they think the energy is going to come from?


A serious country, a country that wants to get to work, would have already started building nuclear and coal generating power plants. Not just one or two here and there, but dozens, everywhere.

In America we cannot do what France and Japan have done because we have given too much power to the environmental lobby, lawyers, and regulators.

Again, as long as we can all feel clean, and can join together to bemoan the lack of clean energy alternatives, we do not really seem to care.

American do not even think that they need to build nuclear power plants. They seem to believe that we can all go green and produce the energy that we need. Solar panels and windmills... that's the ticket!

Better yet, we are trying to aggravate both the energy and the food problem by pretending that food is energy. So, we are burning corn, driving up the price of food around the world, because believe that ethanol is the solution to all of our energy problems.

If you don’t believe David Brooks or me, take a look at what the markets are telling us.

We are living through a great secular bull market in commodities. It began around ten years ago and still seems to have many years to run.

You cannot say the same for the technology heavy Nasdaq. While the prices of gold and copper and wheat and corn have been flying, the Nasdaq, over the past eleven years, is down more than 40% from its 2000 high.

Sometimes reality tries to tell you something. It’s always a good idea to listen.


David Foster said...

Colombia is looking at building a land-bridge railroad, largely funded by China, to serve as an alternative to the Panama Canal. Freight will transfer from ship to rail on the east coast, go about 130 miles overland, and reverse the process at the other end.

It's questionable whether this really makes economic sense for container freight, given the costs of offloading and onloading (unless the Panama Canal becomes very, very traffic-saturated)...but it appears a major use of this railroad would be for COAL, which exists in quantity on the east coast of Columbia and is needed by China.

Which tends to provide more evidence that, Tom Friedman notwithstanding, the Chinese leadership sees coal power plants in their future for a long, long time. They understand that if they can achieve an electricity cost basis significantly below that of the US, it will greatly advantage their manufacturing in a whole range of industries.

David Foster said...

On the broader cultural issues raised here, see my post faux manufacturing nostalgia.