When I moved into my suburban Washington, D.C., neighborhood three years ago, the nearby town center was a thriving hub of restaurants, shops and theaters, where boutique dealers of furniture and knick-knacks rubbed shoulders with high-end eateries of all kinds.
But lately, when I’ve stopped by some of these shops and eateries, with a meal or a gift in mind, I have increasingly encountered a sickening sight: Closed doors.
In fact by my own informal tally, at least a half dozen businesses within a few blocks of my front door have gone belly up since my arrival — a lot, it seems to me, especially given such a small area in such a short amount of time. It remains to be seen how many new businesses will rush in to fill the void, but so far some windows have remained dark for more than a year.
Don’t get me wrong. It’s still a nice neighborhood, and there’s still lots to do. But the closing of shopkeeper’s doors is always a symptom of a creeping and chronic condition.
Then I get news from my hometown in Colorado, where my family and many friends still live. There, as in much of the country, it is the same, but worse. Unemployment is high; underemployment is higher. Once-bustling businesses are on life support. A friend of mine who owned a highly successful electrical company recently had to shut down for lack of work. And on, and on. From the suburbs of the nation’s capital to its deepest heartlands, the Great Receding has begun.
It’s all got me to thinking about prosperity, how evanescent and fragile it can be. When times are good, the champaign flows freely and the party feels permanent. People spend and build as if today’s fortune will roll effortlessly over to tomorrow.
It doesn’t, though. Not always. And when the music stops abruptly and the market crashes, people always seem shocked that they can no longer afford the the fancy clothes they wear, the fine meals they eat, the big houses they inhabit. Or the small business they opened.
But of course, the flip side is also true. Bad times don’t last forever either. As Abraham Lincoln was fond of quoting, “And this, too, shall pass.”
But when? For two decades, America was flooded with prosperity and the optimism it brings. Now the Great Receding has begun, and I can’t help but wonder:
Can so spoiled a people learn to live without the things they never needed in the first place?
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Here’s the problem: That “prosperity” was bought by burning through capital. There is a lack of capital, now, as documented by what we call “debt”. That “debt” must be repaid.
No, I’m not talking about a magical vacuum where there is somehow less stuff. What I mean is that, like a pulled rubber band, much of what has been done must be un-done in order to achieve equilibrium.
This is what Austrian economists call “mal-investment”, which must be liquidated in order to re-align production with actual preferences. Thus businesses go out of business, houses go un-sold, bankruptcies occur, etc.
The quicker this correction is allowed to happen, the sooner people will be able to assess their real assets and get on with their business.
But this correction is not being allowed to happen. So this gangrene continues to fester, digging ever deeper into the economy, and when the correction does finally occur it will be more catastrophic, more painful, than it would otherwise be.
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