Optimism!

These days, the dismal science of economics is producing quite a lot of bad news. If you can find the time to read this 5-part piece, it's a great explanation of what to expect over the next couple of years (full disclosure: I don't own property and have a very cash-heavy portfolio). Meanwhile, Greece has officially gone the Bear Sterns route, meaning the next country up gets to play Lehman Brothers. Oh, and don't forget about this year's Social Security shortfall.

What does this mean? At first blush, it seems like the death of modern prosperity, capitalism and possibly civilization as we know it. It will certainly seem this way for many, and I do not want to minimize the pain that is to come in any way. But does this really mean the beginning of a long, dreary future?

Hardly. We will, as a society, be considerably less wealthy going forward, but also less busy. Easy credit encourages ever-increasing productivity, requiring a constant increase in the time required to work off the debt. A new computer with better editing software lets everyone write a paper or legal brief faster, giving the authors more time to write more briefs. Not surprisingly, the burn-out rate in the creative professions has been growing steadily. Anxiety and depression are now so common among students that faculty know their department's procedures for handling it better than the fire escape routes.

In an easy credit society, every marginal unit of labor competes with any capital or process improvement that reduces labor. When interest rates are very low and the cost of employment, in the form of wages and mandates such as health care and unemployment insurance, grows steadily, automation always wins. It wins out on farms, producing vast amounts of infertile corn. It wins in factories, with fewer people required to operate the robots that do all the machining, assembly and clean-up. It even wins in retail, replacing mom-and-pop clerks with shelves that force customers to do much of the labor.

The coming years of deleveraging will be bad, and despite enormous spare capacity there will not be demand for much new economic activity for several years. The "new normal", however, ought to be a more pleasant place. Mechanics, plumbers and handymen will find plenty of non-tradable work keeping up houses and cars that people cannot afford to replace. Climate and environmental pressures will ease as people replace 300-1000W desktop computers and TVs with 30-100W laptops. Bicycle commuting will rise as more people buy up depressed "urban infill" housing, with accompanying benefits to health, traffic and national security.

The new normal will be smaller, more Aldi than Walmart, and more labor will move from the factory and fast food kitchen to the home. The future may be hot, flat and crowded, but I think we're heading towards a pie-friendlier world.