Old Economy, New Economy

– Norah Jones "Sinkin’ Soon" Lyrics

Paulson lied.

He claimed to have a coherent plan for $700 billion in workout money. I supported him on that basis. He would buy up toxic assets at the market value, find the real value in them, and re-sell them for what they were.

Instead he propped up the capital in banks and insurance companies, no strings attached, and now he claims to be trying to prop up consumer spending and housing.

Heckuva job, Henry.

Michael Brown at least had the excuse of a rotten career in the private sector. Hank Paulson was once the head of Goldman Sachs, the smartest investment banker in the world.

Markets have tanked for a good reason. It is now plain that there is no one with a brain cell alive in Washington City. If Paulson has lost his marbles, the old economy is lost.

The implications of that are painful to contemplate.

Housing has to find its level, regardless of the consequences. Consumer spending has to find its level, regardless of consequences. People have to get their own balance sheets in line, on their own, or go under. Same with all kinds of businesses, all around the world.

The old economy is dead. It can no longer be saved. And this has enormous implications for the policy of the new Administration.

We need to concentrate on the new economy. (This book available for $5.95 from Kelvin.com.)

The new economy will make us, again, a nation of makers. Not of spenders, makers.

We have a lot of things to make. Medical equipment things, and drug things. Alternative energy things. Infrastructure things of all sorts — roads, trains, broadband. Internet things, education things, and new goods that use these new power sources efficiently.

These are investments which must be made for the new economy to grow. We have to become, by far, the most efficient producer and deliverer of the new goods the world needs to win The War Against Oil and the battle of climate change.

That’s where the next boom lies. We know that. But getting there is going to be painful, because the old world can no longer be propped up while the new one is built.

It will require leadership and straight talk for people to have patience for such a plan. It’s not going to bear fruit for years. We’re talking about long-term growth for a long-term future. And we’re talking about downsized lifestyles for as long as it takes to make that future start paying off.

This is what the phrase "Depression Economics" really means. It does not mean, as the yakkers will tell you, throwing out the old rules and improvising. It means putting money we don’t have into investments which won’t pay off for some time. Unlike the investments of the last Depression, which were mainly in armaments, we need to be putting this money into plowshares, because we’re in an economic battle here, a race against time in which everyone around the globe either wins or loses.

Your home value is not coming back. My retirement value is not coming back. Not for years. We have to build new value, create new markets, and sacrifice until the world is remade in a more sustainable image.

The companies that emerge from this wreckage will be different than those we have now. Even for those whose names remain the same, the change will be wrenching. But there is no way to save the old world, and the nation which realizes this first, which starts to build anew first, will lead the new one.

UPDATE: I wrote the above before finding that Robert Reich got there ahead of me.  We disagree on the margins but not on the merits.