Yesterday I had the great honor of meeting John Sharp, Chancellor of Texas A & M University. We were attending the "Higher Education Summit" at Texas A & M University in Corpus Christi.
Chancellor John Sharp has impeccable financial credentials having been the Texas State Comptroller from 1991 to 1999 and having served in the Texas House and in the Texas Senate, as Chairman of the Senate Finance Committee. I give great credence to whatever he has to say about financial matters.
During the Summit, Chancellor Sharp was interviewed by Rep Todd Hunter about the general shape of Texas financial affairs. It was a revealing interview. Apparently Texas as a State has a bright future. During the interview the Chancellor commented on the current recession and presented a theory on the cause and its possible duration.
We have heard many people give forth on this subject but after Chancellor Sharps comments, yesterday, I realize that they are all wrong. Chancellor Sharps correct explanation is deceptively simple and has gone unrecognized by most even though the he explained it in a prediction over 10 years ago.
As he explained it, there are two factors that created the "recession" and that will keep it running much longer than any of us expect. Neither of these factors was the fault of the policies of either George Bush or Barack Obama. Interestingly, if Obama had known the cause, he might never have run for office!! I believe that Obama truly believed that a change in fiscal policy would cure the problem. He was wrong, it was not "Bushes fault".
The first, chronologically, was the Second World War. It created the "Baby Boom" which put a bulge in the population growth curve of the United States. The second was the end of the "Cold War". Actually this could also be attributed to the Second World War which set up the environment that created the Cold War in the first place, so maybe there was only one cause.
The Baby Boom created a huge increase in the consumer demand by increasing the number of consumers. This meant that industry needed to expand and retail outlets needed to expand to service the demand. This expansion was contained in the United States, at that time, because the Cold War did not allow for the exportation of manufacturing to China, Korea, etc. to take advantage of the lower costs of offshore plants. This in itself increased the number of jobs available for the growing population. The economy of the United States, after the Second World War, began a great expansion, internally, to satisfy the demand of the Baby Boomers, and all was well.....or was it?
Then the easing of tensions between the US and Russia began, the Thawing of the Cold War. And then the ending of the cold war, beginning in 1985 with the election of Gorbachev. Then in 1989 the destruction of the Berlin Wall and finally, by 1991 the "war" was over.
Once the Cold War was over it was possible to export jobs and manufacturing to China and other former states of the Russian alliance. Suddenly, the job base in the United States began to contract. This happened while the Baby Boomers were still in the job market.
Now as the Baby Boomers are leaving the job market and the job market is shrinking because of outsourcing, our economy is contracting, fewer consumers, fewer jobs. Will it end soon, probably not, according to Chancellor Sharp, because the productivity demand of the Baby Boom is slowly ending as the bulge moves past. Also, there is no impetus for the re-importation of our industry either because of increased demand or because costs have increased overseas. So the prospects for an early ending of the current recession are dim.
Chancellor Sharp suggests that the recession could last another 8 to 10 years.
This explanation is the simplest and most plausible that I have heard yet. It makes the blaming of Wall Street, Barney Frank, George Bush, 911, the Tsunami in Japan, etc. all pale by comparison. Only this theory is big enough to encompass Europe as well as the US and tell us why it is lasting when we were told it was over. Being an engineer I am a believer in the KISS (Keep It Simple Stupid) principle. This is a very simple but very powerful explanation. I believe it.
"You shall know the truth and the Truth shall set you free."
Jim Isbell
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