"It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers," Volcker said.
U.S.: a decade of descent
And there you have it -- the United States' decade of descent, in a nutshell. Volcker's observation speaks volumes about where the United States economy -- and the nation, at large, for that matter -- is today.
For reasons that historians will undoubtedly debate for decades (globalization, automation, flawed public policies, inadequate regulations, overconsumption, the availability of foreign capital, greed) the United States embarked on a financing boom -- creating an increasing array of creative and untenable mortgage types, accompanied by an equally problematic set of mortgage backed securities. It generated an unsustainable housing bubble, which ended as all bubbles do -- badly -- triggering the global financial crisis.
And yet, all the while, as Volcker observed, public investment in infrastructure -- the physical backbone of the economy, of the nation, really -- declined. That infrastructure is now in a state of disrepair. The nation's schools, hospitals, roads/bridges/mass transit systems/air travel system and even our electric grid are inadequate to meet the nation's current requirements, let alone the requirements of an expanding, vibrant, dynamic, twenty-first century economy.
Volcker's comment touched on an economic truth: it's very hard to grow at capacity if your infrastructure isn't up to standards. The U.S. didn't maintain its infrastructure -- a lot of Ph.D. power went into derivatives and swaps, instead of into building schools, hospitals, and the electric grid -- and as a result the U.S. now has an infrastructure hurdle, to go along with a financial hurdle, standing in the way of the nation's return to economic health. That inadequate infrastructure will artificially depress U.S. GDP growth below capacity until it's repaired.
Volcker underscored that the U.S. must begin the "physical rebuilding of the nation now," and prioritize which parts of the infrastructure are vital to the nation's productive capacity and must be repaired immediately, and which can wait for better times.
Economic Analysis: The failure of the U.S. to invest in its infrastructure ranks as one of the core public policy failings of the decade, to go along with its massive budget deficit/lack of a tax increase to pay for increased defense spending, and its lack of an energy policy to lower its trade deficit. The above were integral parts of the decade of descent. Here's hoping the new U.S. president and Congress heed Chairman Volcker's advice and invest in infrastructure, to start the decade of ascent. To borrow a phrase from a famous baseball team owner, if the U.S. does, the nation will be back, and we'll be better.