I’ll have to add Bill Gross’ latest missive to the list of references for an upcoming article about the nonsensical conventional wisdom that the lack of “aggregate demand” is the proximate cause for the world’s economic troubles. That is, like in the Great Depression, it doesn’t matter how you got there – if it’s a one-decade easy money credit orgy or a multi-decade one – if demand isn’t growing fast enough, that’s the problem you’ve got to solve.

Well we’re living here in Allentown
And they’re closing all the factories down
Out in Bethlehem they’re killing time
Filling out forms
Standing in line
And we’re living here in Allentown

– Billy Joel, 1982

We’re all Allentowners now. Granted, 90% of the workforce is still reporting for work on time, but our standard of living, our confidence in the future – we’re standing in line in Allentown. Lost in the policy debate surrounding the elections and the subsequent demonization of the Federal Reserve’s Quantitative Easing (“QE2”) policies has been any recognition of why we no longer live on Ronald Reagan’s shining hill or how we might possibly reclaim higher ground. There are two fundamental explanations:

1) The global economy is suffering from a lack of aggregate demand. In simple English that means that consumers are not buying enough things and that companies are not hiring enough people because of it. Growth slows down, especially in developed as opposed to developing countries, and the steel mills of Allentown, USA and Sheffield, England close down.
…
2) With insufficient demand, nations compete furiously for their share of the diminishing global growth pie. All look to borrow growth from somewhere else … At some point in the 1970s to 1980s, however, the rest of the world began to catch up. Japan produced better cars than Detroit, the Iron Curtain fell, and the rise of China was soon to rock American/developed economies out of their presumption that the world was their export oyster. Billy Joel’s Allentown was transformed from an iron and coke/chromium steel behemoth into an unemployment center, filling out forms – standing in line.

Wow, that song was written 28 years ago … about a town that was about 20 minutes away from where I grew up and about ten minutes away from Bethlehem Steel, the town that everyone thought Joel was referring to but didn’t rhyme nicely with anything…

It seems that denial and escapism are easy solutions for many to the economic troubles they face, whether the troubles are real or imagined. A candid look at how the younger crowd sees things comes via this story at RT.com and the video below.

The report notes that, in recent years, “the word ‘economy’ in the United States has been synonymous to the notion of horror for millions of Americans” and, when asked how he copes, a young New Yorker said, “I sit in my room and I smoke a lot of weed”.

While this is far too small a sample to draw conclusions, it is an interesting data point.