The crash of the US and global economies offers a chance for the developed world to readjust not only their regulatory systems, but also their patterns of spending and consumption. For too long we have seen two very destructive forces at work in our economy: the "externalizing" of hidden costs, and the false valuation of companies fueled by speculative and unregulated lending and investing.
"Externalized costs" are the damaging consequences of a product's life-cycle that are not accounted for in the product's price. For example, one of the externalized costs of electricity generated by coal-burning power plants is the death toll due to particulate emissions—estimated recently by the EPA to exceed 30,000 US citizens per year. Other common externalized costs are the suffering and privation of exploited workers and the heavy environmental toll in the countries that now supply us with nearly all our consumer goods. These hidden costs make every consumer indirectly complicit in the infliction of human misery, the denial of basic human rights, and the wanton destruction of the earth's precious resources and living ecosystems all around the world.
Underlying the crash of our financial system and the subsequent crash of our manufacturing and commercial sectors is the fact that investments of all kinds have been improperly valued. The value of publicly-traded companies, for example, has been based on speculation rather than real assets and earnings. Publicly held companies—those that are owned by their stockholders—are rarely worth the actual collective value of their stock because stock prices are determined by the law of supply and demand, not by actual company value. The dotcom "bubble" was the result of a huge demand for internet technology stocks based on the widely held belief that the IT companies would do well; so the price of technology stocks shot through the ceiling, far exceeding any real valuation of the companies they represented. Then, when reality set in and people started selling, supply far exceeded demand and prices crashed far below what many of the companies were actually worth.
The same kind of supply and demand dynamic is at play in the financial markets, especially in the unregulated world initiated by the Reagan administration and promoted by every administration since then. Instead of real value, the "perception" of value was used to establish prices of financial instruments. Some of the biggest investment firms were buying investments using lines of credit secured by only 3¢ on the dollar. In other words, a company might secure an investment of $1,000,000 with a deposit of only $30,000. As long as speculation drove prices up and the economy was growing, everything was fine. But if the price (perceived value) of the $1,000,000 investment fell below $970,000 the company would have lost not only its $30,000 but would also be liable for the difference. Is it any wonder that so many banks and brokerage houses have gone belly up recently? The entire system was a house of cards.
The Obama administration is now taking on the awesome task of fixing the financial system, but the real hard problems are going to be faced by the American public. The fact is, the rate at which Americans are consuming and laying waste to the planet's resources simply is not sustainable. With 5% of the world's population, we are using 25% of its energy and other resources—leading to the hard conclusion that we must somehow readjust the way we manufacture, market, purchase, utilize, and dispose of products and services. Some of the solutions are relatively easy. For example, instead of building more electricity generating plants we can dramatically reduce the amount of electricity we use without any loss in our "standard of living" by implementing energy efficiency measures.
Energy issues are easy, however, compared to other adjustments consumers will need (or be forced) to make. Without the "subsidies" of exploited 3rd world labor and environmentally destructive manufacturing practices, the price of most consumer goods in the US would skyrocket. Imagine how much a shirt at WalMart would cost if the person who made it in some 3rd world sweat shop was paid $20.00 per hour instead of 23¢--or how much household electricity would cost if all the hidden health and environmental costs of burning coal were factored into the price.
There are many "efficiencies" whose implementation could mitigate some of these hidden costs without putting much upward pressure on consumer prices. "Fair Trade" coffee, which is commonly available in grocery stores, is a good example. By eliminating corporate "middlemen" (with their associated costs of administration, marketing, and stockholder profit) and buying directly from coffee growers in 3rd world countries, the distributors of Fair Trade coffee are able to keep the retail price relatively low while dramatically increasing the earnings of the growers. However, even with the efficiencies gained by eliminating middlemen and their often excessive profits in all manufacturing, service, and financial sectors, the buying power of the US dollar would still be heavily impacted if workers were paid reasonable wages and companies were held responsible for the costs of their environmental impacts.
At some point our core American values of "fairness and freedom for all people" will have to be reconciled with the way we live and the way we shop—and by extension, the way the companies that supply our goods and services treat their employees and manage their environmental footprints. The current economic crisis demonstrates that unregulated free markets are dangerously unstable. All along we should have demanded that the regulatory arm of government ensure honesty, transparency, and stability in the financial, manufacturing, and commercial sectors. We should also demand that government take a role in ensuring fair treatment of the employees who are making our consumer goods—from workers in Nigerian oil fields to children making soccer balls in Pakistan. It may seem counterintuitive for government to use our tax dollars to enforce standards that will reduce our dollar's buying power. But is it not an appropriate role for government to ensure that our core values are upheld and infused into all aspects of American life?
This is the sacrifice we should all be called to make: if we are to live in a world of peace, where all peoples' basic human rights are respected and protected, we need to be prepared to pay the price. Our standard of living as measured by the dollar's buying power may go down a bit, but the quality of our lives will be immeasurably improved by ensuring that people everywhere have a decent quality of life.