By Edward Halas
GRAND FORKS -- There have been three great economic surges since WWII.
The first was the tremendous conversion of our industrial power from wartime to peacetime production. Its symbol was the automobile. Iron ore was mined in Minnesota, forged into steel in Pittsburgh and made into cars in Detroit.
Texas, Oklahoma and Louisiana provided cheap gasoline. Millions of people from the south moved north to fill the new jobs that paid good wages. Cornfields west of Chicago, where my father and I hunted pheasants, were turned into sprawling suburbs. There were always problems, but times were good.
Just as the manufacturing sector was maturing in the early 1980s, the microchip and its accompanying software dramatically changed how we did business. Productivity and efficiency increased exponentially, and the wealth of the country multiplied over and over.
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After the digital bust in 2000 and the stock market crash, the party seemed to be over. But it wasn't. The new president, George W. Bush, had made a simple, innocuous campaign promise that went unnoticed by the masses but was picked up by Wall Street and the banks. Bush suggested that if poor people could become homeowners, it would improve their lives and increase the country's wealth. It was a win-win situation and a noble cause.
Banks, which formerly ignored the poor and lower middle class, suddenly began to make no-down-payment and adjustable rate loans. Those same banks, however, wanted nothing to do with these subprime loans over the long term, so they sold them to Wall Street. Wall Street, in turn, bundled these loans with others and sliced them into an alphabet soup of exotic financial instruments that nobody really understood.
When the adjustable mortgage rates were raised beyond the ability of people to pay, the house of cards collapsed.
People's failure to pay their mortgages made it impossible to know the true financial value of all the exotic instruments held by banks, hedge funds, pension plans and investment funds. The result is a credit gridlock throughout the financial system, which is continuing today. Banks are afraid to lend to each other or to small and large businesses. That seriously restricts the growth of the economy and may lead to something worse.
Economists keep saying the economy has been growing at a steady 1 percent, which is correct but not the whole story. That 1 percent growth is not going to the working poor or the middle class. It is going primarily to the wealthy 5 percent. The working poor and the middle class are struggling to stay afloat, and many are going under. A few token investment bankers may go to prison, but the vast majority will sail off into the sunset in their new super yachts.
What is so sad about this third economic development, unlike the first two, is that it was based on greed and lies from the beginning. The results are disastrous. As many as 3 million people may lose their homes through foreclosure.
Nobody can reliably predict the future, but an old slogan from the past may provide some insight. In the early 1950s, Charles Wilson boldly stated, "What is good for General Motors is good for the U.S." Recently, there have been rumors on Wall Street that General Motors may have to declare bankruptcy in 2009. If Wilson were alive today, he may have to modify his slogan to "As General Motors goes, so goes the U.S."
Halas is a retired professor of psychology at UND.
