In 1376, Oxford University built its New College with oak beams for the ceiling that spanned 45 feet and were upwards of two feet thick. Oak trees of a size and straightness necessary to mill such beams are rare. They were so rare that the college forester identified some oak groves seven centuries ago in anticipation that the beams would need to be replaced someday.
When that day came, the Oxford architects first scoured their sources for suitable timber, to no avail. Then by chance they asked the college forester. He responded that they had wondered when the college might need some of the old oak trees they had saved for centuries. The foresters knew that beetles would eventually eat the old beams.
Such long-term planning is almost completely unknown nowadays. Our time horizon has shrunk to the attention span of an Internet-dependent citizenry. Electronic devices seem to break down within weeks of the expiration of their warranty. Repair is now often more expensive than replacement. We live in the age of immediacy and planned obsolescence.
What is different now than a millennium ago or even a decade ago?
Northern Europe thrived following the Dark Ages precisely because it suffered harsh winters. Those hardy enough to survive the challenging climate did so only if they had the foresight to plan for the future. While their ancestors who lived in warmer climates were never more than a few months away from another bountiful crop, Northern Europeans and Northern Americans had to harvest in the summer and fall and make their stocks last over six long and cold months.
With the necessity of saving and with the planning for surpluses of one season to tide them over for the others, all kinds of innovations occurred. With surpluses came specialization of labor, global trade and economic diversity. Economies flourished and civilization vaulted forward during this economic and cultural Renaissance.
These economic innovations were both a boon and a bane. Over the last couple of centuries, we began to replace physical stockpiles with financial stockpiles. We are no longer concerned whether each of us has the foresight and the stock of goods to carry us through the slow seasons. Now, we only worry that we have the financial stocks to do so. As a consequence, survivalists aside, consumers now look to save in sterile and distant financial markets rather than through our choices of production and consumption. The wide variety of options the Internet presents to us has exacerbated this tendency.
There are obvious advantages of a finance-based economy. Our stock is now simply the sum of our financial investments. We have been unburdened of the responsibility to make good long-term production and economic-investment decisions. Instead, we take as faith that others are making appropriate investments in the real economy to ensure goods are available, often only a few keystrokes away, when we want them.
Just-In-Time production amplifies this immediacy. No longer must companies invest in excess capacity and large inventories. They can ramp up and down quickly to accommodate market whims.
An emphasis on just-in-time and on the financial rather than the real economy have fostered almost unimaginable efficiencies. However, these innovations have a dark side. Everything works very well only so long as everything works very well.
The Global Financial Meltdown demonstrated just what happens when one part of this complex and interwoven system collapses. The entire system is brought to its knees. Even the run-up before the Meltdown was dangerous. When greed and short-term gratification replaces prudence and long-term planning, our economy becomes inflated and unsustainable. Combine these two forces, and add in a dollop (or ten) of political dysfunction, and we had the perfect economic storm.
These United States are a curious combination of Yankee ingenuity and perseverance, immediate gratification, a strong tendency to maintain political and economic status quos, a pull-yourself-up-by-your-bootstraps attitude combined with a robust social safety net, and an entrepreneurial spirit admired the world over. These tensions seem to work very well, until they don’t.
Yet, we remain economically short-sighted. Someday we should plant trees to make those beams we can’t imagine needing for generations or centuries to come. These days, someday rarely comes.
Colin Read chairs the finance and economics faculty at SUNY Plattsburgh and has published a dozen books on global finance and economics.