(as printed in the Portland Business Journal, November 19, 2010)

We’ll have to lead ourselves out of this malaise
By Dave Chen

It feels like America is at a cross roads — or maybe it’s a plateau.

In many ways, this recession is more about a set of structural changes taking place in our country. In many ways, this recession is going to focus our attention on American expectations, our way of life, our standard of living, our role in the world.

I say “going to” because none of our political leadership wants to lead us in this discussion and paint a vision towards our Manifest Destiny of the 21st century.

America’s greatest strength is our sense of expansive opportunity and willingness to tear up the status quo and just build something new. The challenge in this century is that there are now several nations with that same culture and energy. Our greatest weakness is that we’ve lost our sense of sacrifice for the better whole. Our challenge is that the citizens of several of our competitor nations are collectively feeling this sense of national pride and destiny.

Let’s step back and look at our economy:
• The labor market is stuck. This high unemployment and “stuckness” reflects a systematic dislocation of skills and geography. The U.S. Federal Reserve is finally willing to admit the 2009 recession recovery could be much more like the 2002 recession recovery in terms of the “slope of curve,” or rate of recovery. In other words, a five-year recovery to improve they unemployment rate by 5 percent. There is a darker scenario that says this could be a 12-year process.
• Consumer spending is still down, reflecting unemployment, the loss of home value, and coming down off our historically high household debts using credit cards and home equity loans. This is going to take a long time.
• Inflation will not likely be driven by wages or capacity constraint. We have excess manufacturing capacity and companies have the ability to access a global supply chain and a global labor pool. We are seeing no real escalation of supply costs yet, though there are worries about China and India consumption driving commodity and energy prices up.

The outlook for the next three years and beyond includes strong worries about U.S. inflation based on monetary and fiscal policy.

There are reasons to be seriously worried about the recovery.
1. The high, persistent, long-term unemployment rates reflect systematic dislocation of skills, industries, and geographies.
2. State government budget gaps continue to have a ripple effect through local and regional economies. These gaps continue to have a ripple effect through local and regional economies.
3. When will we start trading down in our buying expectations and lifestyle? What are the implications of smaller homes, smaller cars, fewer, less-expensive durables on the nation’s GDP?
4. China, India and Brazil are growing. These are risky economies with prospects of bubbles.

Each of these worries are about structural, not cyclical issues. You can’t address structural challenges with tweaks around the margins.

Can we alter this course? The answer is yes. We’ve seen nations make these changes before. Twenty years ago, Brazil had a four-digit inflation rate and was World Bank basket case. Today, it’s a an agricultural superpower, a bio-economy leader and a buyer of US treasury debt.

Look at China 20 years ago, India 15 years ago and Korea 30 years ago.

In our post-Vietnam America, Ronald Reagan led us out with a vision of America’s expansiveness and destiny.

Our new Manifest Destiny will be different. Can we define the lifestyle, business model and economy of the post-consumerism industrialized nation? How do we find that nexus of change? Today, as we face malaise, if our leaders won’t lead, can we uncover this spirit ourselves and lead the way?