By Donella Meadows
–October 29, 1987–
“Everyone is a little puzzled,” said President Reagan on the day the Dow dropped 508 points. “I don’t know what meaning it might have, because all the business indicators are up.”
It was an appropriate statement for a President, an administration, and a decade that have consistently confused indicators with reality, the appearance of leadership with actual leadership, fantasies with facts, national symbols with the nation itself.
In some ways the world has changed totally since Black Monday. In other ways nothing much has happened. It’s crucial to sort out, finally, what is real and what isn’t.
What crashed on Wall Street were perceptions, expectations, images, assumptions, indicators. What changed, mainly, was minds.
I saw that change go through a crowd like an earthquake tremor. I was in Vermont on Black Monday at a conference of conservationists. All day we had been worrying about what the speculative real estate boom was doing to the New England landscape. Then at dinnertime the news swept through the room — down 500, really, no joke, down 500.
We didn’t know why it had happened, we didn’t know what came next. But we knew our plans were somehow irrelevant. The land boom, the regional economy, and the funding of conservation organizations were all about to be very different; no one knew exactly how. The problems and opportunities we were sure of that morning had all been cast into doubt.
A shift from certainty to uncertainty affects the behavior of everyone, even those without a penny in the stock market. People are now thinking differently, talking differently, planning differently. They are waiting to see what happens. Bold actions are being postponed; decisions are more tentative. It is a new world.
Of course the real landscape of Vermont didn’t change in one day, nor did the real economy. The real economy is workers and factories making products out of raw materials. It’s stocks of those products in warehouses, in stores, and in the homes of consumers. It’s money in bank accounts, debts that have to be paid, roads and houses, bridges and towers, farmland, mines, forests, oil wells. The real economy is a massive collection of physical things, so huge and complex, so literally cast in concrete, that it takes decades to change.
The real economy is about the same now as it was in August when the Dow was at its peak. Only the values of stock portfolios have changed, and they have (so far) only fallen to where they were in early 1986.
The real economy hasn’t crashed, but it also never soared when stocks did. If you sweep away the fanciful Reagan imagery, look at the statistics, and smooth out the ups and downs of the business cycles, you see that the economy has been going slowly downhill for at least a decade.
Average real hourly wages are less than they were in 1973, and the amount of consumer debt has more than doubled. The rate at which Americans are saving has fallen in half since 1980, in spite of the tax cuts. The unemployment rate of 6% used to be the worst we experienced at the bottom of a recession, now it’s the best we can get after five years of recovery. The dollar has lost 40% of its value in the past two years. Corporate, foreign, and government debt have all ballooned. Bank failures between 1950 and 1980 were never more than 20 per year; in 1985 there were 120, in 1986 there were 135.
A larger percentage of our factories are lying idle now than when Mr. Reagan took the helm in 1980. The youngsters coming into our workforce are less well educated, our roads and bridges are less well maintained, many natural resources like forests, grazing lands, groundwater, and soils have been depleted or polluted. About one in five of us now live in poverty — one in four of our children.
These facts have been worsening as we have been celebrating Morning in America. Many people have had the courage to point that out, although the message was distinctly unpopular. The society preferred symbols to reality and resisted being wakened out of its dream.
Now an alarm bell has sounded, and we’re going to have to focus on the real world. What’s out there is the normal combination of bad news and good news.
The bad news is that some people have a lot less paper wealth than they thought they had. Hardly anybody is going to get fabulously rich any more while doing nothing productive. Many important things have been unattended to, and there’s lots of work to do. Probably the worst news is that we are coming to that work with shattered expectations and with fear, which could slow down the real economy just when we most need to get it going.
The good news is that nothing real has crashed. Our material wealth is just what it was before Black Monday, waiting to be put to use producing real products that people really need. We aren’t as rich in symbolic wealth as we thought we were, or as rich in actual wealth as we were ten years ago. But by historic and present world standards, we are still enormously rich and capable of getting richer, by working hard and tending to our true assets.
As John Kenneth Galbraith said in his introduction to The Great Crash (a book that should be required reading for everyone now), “While it is a time of great tragedy, nothing is being lost but money.”
Copyright Sustainability Institute 1987