Why Are Things So Bad and Not Worse

America faces a multitude of dire economic and fiscal crises. Things are really bad but why aren't they worse?

Why, if everything is so bad, is the economy continuing to grow, even if just barely, and why are the presidential candidates ignoring these serious crises to play the politics of distraction? No one seems to care that the world is falling apart.

The catalog of desperate threats is mind-boggling.

Financially, the banking system requires injections of $100’s of billions and unprecedented guarantees by the Federal Reserve which has expressed the fear that the system could collapse. Monetarily, the dollar has dropped sharply and may have another 30 percent to go.

Economically, the US manufacturing base has evaporated and wages (adjusted for inflation) are essentially where they were in the1970s. A whiff of depression is in the air and the Treasury Secretary is warning of a return to the stagflation of the 1970s.

Fiscally, the annual federal deficit is approaching $500 billion per year and the national debt now totals over $10 trillion. We borrow trillions from foreigners even as tax revenues are falling and government costs are rising.

Food, energy, housing and health care -- the basic costs of life – are soaring worldwide. What else could be that important? Well, aside from Britney Spears, there's The Global War on Terror, and the best we can do there is put Osama bin Laden's driver on trial.

Despite all this trouble, the economy still does not meet the official definition of a recession – although some very bright people have been saying for the past year that we have been in a "slow-motion recession". Again, why aren't things worse?

The answer, I suggest, lies, first, in the new technologies that are spreading around the world, second, the complicated interdependency of our economy with the rest of the world and, finally, with our unresolved role as, according to Secretary of State Madeleine Albright, "the indispensable nation."

First, innovative technologies mean the U.S. and world fundamentals are still good. New technologies cut costs and create jobs, making productivity -- the all-important measure of efficiency – go up. This is happening domestically and around the world.

The aptly-named emerging world can no longer be dominated and treated as a primitive resource base. Latin America, the Near East, Southeast Asia and Russia -- have all awakened. They want our lifestyle and have the money to compete with us for the raw materials we've taken for granted. Their burgeoning demand is the reason for our price increases in food and energy.

Next, the new technologies are being assimilated by the emerging world much faster than in the US, giving them an average growth rate of almost five percent, double our rate of growth.

We are all living those new technologies. Cell phones, personal computers, and the Internet all require little time and comparatively little capital to install and use. Super fast trains, mammoth container and bulk cargo ships, the amazing FedEx and UPS package control -- they all cut costs. The outsourcing of manufacturing and information management have scattered factories and offices around the globe.

The installation of this technology in that emerging world is holding the American economy back from the precipice. Keeping things from getting worse means permitting us to put off the real disasters. We can, for instance, splurge on the trinkets and trash of China and ignore the consequent trade deficit. We can borrow back the money we paid to China to finance our wars.

America traditionally provided the world with its money and capital. We were the dumping ground for the world's exports and its cheapest source for food and manufactured goods. We warded off the communist threat. But we have not settled on a new role in this world of mobile technology and emerging economic power.

That old world is now disappearing and our attempt to project power, democracy and peace ends up in "regime change". The debacle in Iraq makes clear that projecting military power is not the best way to spread peace and democracy.

Neither we nor the rest of the world have yet settled into the new rules that are appropriate to this new world. We tried inserting the old-world, neo-con ideology of military power into the volatile mix of new technology and economic growth. Eight years of fumbling about has led us to multiple crises and a disastrous slow-motion recession.

The wonderful new technology is still there. The rest of the world is still growing. And America will in time find a new leadership role. In the long run, we can grow out of our problems. In the meantime, these are the reasons that things are so bad and the reason things will get worse before they get better.