In 2008, We the People are in the midst of a slow-moving but astonishing transformation. Our whole society and economy is transforming from the pursuit of what’s in it for me to what’s in it for us—from the Consumer Economy to the Responsible Capitalist.

In the last half of the 20th century, we all joined forces to insure the growth and success of the Consumer Economy. A grateful public applauded when economists vanquished recessions and “proved” that they had made depressions obsolete. The strategy was simple. Because consumption accounts for about two-thirds of GDP, boost consumer spending. Reduce taxes and/or interest rates. Roll out government money. The strategy was also politically agreeable. After World War II, all industrialized nations were passionate about consumer spending.

Unfortunately, the Consumer Economy is not a static reality. Everything changes. Over many decades, the relentless drive to boost consumption inevitably brought overconsumption and with it, dire consequences.

Cheap credit, for example, ignites consumer demand but also inflates real estate prices, opening the door to a housing bust. Reducing taxes increases consumer spending and makes social security less secure, health insurance less healthy and education less educational. Consuming more also delays the restoration of the environment and our infrastructure. By burning oceans of oil and mountains of coal, the Consumer Economy imperils the planet with global warming. And isn’t it likely that inciting voracious appetites contributes to rampant obesity and rising medical costs?

In 2008, the Consumer Economy no longer fits our future. Mainstream Economics, its long time chief support, no longer serves the public interest as it once did.

Transformation Economics predicts a different direction for the society and economy of the 21st century. I call the new direction Responsible Capitalism because its mission is to rectify damages inflicted by decades of overconsumption. Expect more socially responsible attitudes and values to enter the public mindset—on infrastructure, the environment, education, global warming, the poor, the aged, the sick. Expect sweeping change in all tastes and preferences and the rise of new industries in regions long dismissed as irrelevant. Expect government to be more aggressive in undertaking socioeconomic functions. Finally, expect the Responsible Capitalist to endlessly replicate its DNA throughout the entire social and economic system.

Because it disrupts an old and familiar pattern of supply and demand, socioeconomic transformation produces massive uncertainty. Like poison in the economic bloodstream, uncertainty paralyzes energetic entrepreneurs and slows economic growth. Economic imbalances bring recession. Uncertainty—breeding and building during decades of transformation—brings depression. A period of unsatisfactory economic growth will not be corrected until transformation to the new society and economy is completed. Society changes slowly.

Uncertainty brought the Great Depression of the 1930s as penny-pinching Victorians grudgingly and unevenly transformed into free-spending consumers. Decades would pass before those people could learn how to throw their money around and use credit cards.

After the Great Depression prosperity arrived as uncertainties dissolved. The new Consumer Economy integrated spendthrift consumers with burgeoning new industries and a supportive government. From its lows in the 1930s, the rate of GDP growth peaked in the 1960s. Once again, equilibrium returned.

After the 1960s, spendthrift compulsions became increasingly irrational. Certainty waned with the slow rise of a different transformation—from the Consumer Economy to the Responsible Capitalist. The spiraling of uncertainty evident in 2008 suggests the probability of another depression before the new socioeconomy can be perfected—perhaps in the next decade.

Transformation suggests five propositions:
  1. Depressions are not obsolete.
  2. Depressions arise over many decades.
  3. Unlike recessions, depressions are caused by uncertainty due to the transformation of society and the economy.
  4. Although it may not happen, the current transformation makes another depression probable at any time during 2008 - 2020. That probability warrants taking immediate defensive actions.
  5. By supporting the obsolete 20th century socioeconomy, today’s mainstream economics increases the probability of depression. On a deeper level, the fault lies with all of us—all who developed the society and economy of the 20th century.

Short-sighted, we failed to appreciate the immense changes over decades and centuries. We worried about recessions, not depressions. Thinking in terms of months and years we created suburbia with its armadas of automobiles. Thinking decades and centuries we now see the enormous dangers of global warming. We simply cannot continue to win the short run and lose the long run.

After soldiering during World War II, I began graduate studies in land economics at the University of California, Berkeley. From the start, I resisted the central assumption of classical economic theory: unrelenting competition among rational individuals. It seemed to me that in every era, human connections—not always rational—trumped competition and dominated economic action.

Nor did I judge technological innovation as the primary instrument of social and economic progress. In our long evolution, we traded spears for plows, plows for tractors and tractors for automobiles. A critical condition however always precipitated the next step—dire necessity due to excessive exploitation of the prevailing mode of organization. Millennia of good hunting enlarged population, shrank the food supply and created pain and suffering.

Weathered by time and capsized by a torrent of calamities, it was pain and suffering that launched every transformation. Each time, prosperity returned with the explosion of new demands. Markets opened, inventors wakened to the opportunity and whole new industries were born.

We are not passive. As rational creatures we read, write, argue, compete and cooperate. Via millions of creative exchanges we redraw the common map of our minds. Over many decades our efforts coalesce in a single direction, conspicuous, rational and even predictable.

Transformation Economics does not extrapolate. It studies when, how and why an aging socioeconomy becomes obsolete, and it identifies the rise of its successor.

A great divide separates 2008 from only four years earlier. In 2004, a Gallup Poll editor reported that the public is “practically dozing” on global warming.

By 2007, new polls showed that 88 percent of Americans believed that global warming threatened future generations and 70 percent recommended “taking immediate action to help the environment.”

A full century of emphasis on consumer self-interest is drawing to a close. We’re getting a crush on love, on caring for the less fortunate, on sharing responsibility for our community, our world, our planet.

Something important is happening. In a scant four years the facts of global warming have scarcely changed. What is changing is we the people. A new world view is transforming our society, our economy.

Jack Lessinger

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Brilliant description of socioeconomics, its related cycles and imperatives in a way that is clear, succinct and very convincing.—Rein Kuris, Creative Director, Sight Plans Inc.

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