Taking a cue from William Safire’s last column for the New York Times, let’s take a look at three interchangeable economic events, all of which coexist but affect each of us in a different way.

We have all seen M.C. Escher’s art. It is, for lack of a better explanation, confusing and simple, mathematical and whimsical, and above all, intriguing and deceptive. Perhaps best known for his graphic illustrations of a hand drawing a hand or fish ascending skyward to become birds, the Dutch artist who envisioned his world in his head rather than as the result of any mathematical training would probably appreciate the economic situation facing Americans these days.

In his famous depiction of relativity, he challenges the two-dimensional world with a three-dimensional display of gravity. 

While some of the characters in the lithograph can use the same steps, their physical limitations prevent them from doing so in the same direction and although they occupy the same space, they are limited by their environment and, of course, gravity. 

Portrayed in three parts, much the same way as the print, an Escher economy restricts all of the participants by what they can do and the direction they may take. In an Escher economy, we all share the same space with wholly different results. 

Weighed by this country’s indebtedness, the world has begun to view the chances of our currency’s recovery to strength as slim to none. In an Escher economy, the dollar has fallen under its own gravity.

This is occurring despite the best efforts of the Treasury Secretary Henry Paulson Jr. While he actively stumps for the dissection of Sarbanes-Oxley as the answer to the dollar’s predicament, a simple fact stands in the way. Government spending remains too robust. 

With estimates of the cost of the (civil) war in Iraq continuing to escalate, the hope that our economy can simply borrow its way out of this situation have been greatly reduced by tax cuts that failed to stimulate as promised. (Worse news surfaced for this borrow-to-spend administration on Wednesday as the Iraq Study Group’s report suggested any future spending should come from the budget not some emergency fund.) Add to that a strengthening global economy flexing its newfound muscles and using the opportunity to snub our regulated markets have created a truly troubling scenario for the declining dollar.

Foreign investors who have financed our debt have a dilemma of their own. Any sudden sell-off would bring their portfolios down too quickly. That fact, many believe is the only prop holding this tenuous situation together. 

The Treasury may have overlooked a serious flaw in their equation. Foreign investors do not need to calculate the cost of taxes into their selling decisions the way American investors do. That fact alone could cause problems that we are ill equipped to absorb.

I’m sure the average Wal-Mart shopped cares little about where the product they are purchasing was originally bought. They weld their credit card under the impression that the bank they will eventually pay will be American. And geographically, they would be correct. But in an Escher economy, the real banker, the one who loans the money for those imported goods, is most likely on foreign soil.

So while the dollar seems stuck in the midst of some sort of international investor standoff, a truly dangerous position for a country the size of the United States to be in, here at home, we face our own economic relativity.

In a recently released book by authors  Julia Lane, Clair Brown and John Haltiwanger titled “Economic Turbulence”; the topic of jobs comes to the forefront in the discussion about economic volatility. Labor markets, whether espoused by free labor market supporters or critics, have come under pressure from numerous sources. The authors see this a desirable occurrence resulting from global competition.

In an Escher economy, no matter how up the direction seems, and the book actually suggests that employment growth has occurred in many sectors of the markets, the downward drift in the quality of those jobs may be at the heart of any perceived turbulence.

Workers have seen jobs change from the lifestyle sustaining type to the bill-challenging sort and mostly, as the authors note, are caused by internal shifts within the company. The pressures of health insurance and self-directed retirements have forced many workers to make difficult decisions. 

The mention of inflation rings much louder when job volatility is factored in to the equation. Although consensus estimates of economic growth portray a considerable cooler clime in the near-term, the net effect of any inflationary pressure is felt much more intensely in the bottom two-thirds of the economy right now.

Yet the worry of accelerated inflation remains for the nation’s top bankers. The labor market is tight and the economy is cooling according to most economic measures and that, they say, will put additional pressure on inflation as businesses are forced to raise prices to meet demands for higher wages. In an Escher economy, one person’s up is another person’s down. 

The last part of Escher’s economy relates to housing. Reports of sub-prime problems among the overextended and under-employed homeowners have occupied some prime real estate in almost every print and media publication of late. These folks are portrayed as the Tiny Tim’s of the Christmas season, crippled by bad debts and little hope for avoiding default on mortgages that just ten years ago they probably would not have had.

These unsuspecting souls failed to factor in the high cost of homeownership nor were they warned. These are not the speculators who are forced to take lesser payoffs for their gambles in a declining market. These are not the homeowners who have toyed with the idea of selling, taking their equity, and moving on to greener pastures. These are not the equity moochers who only care about how much they can spend. 

These are the Wal-Mart shoppers who earn less, received no benefit from the tax cuts, feel the pain of rising interest rates and inflation and because of that, will eventually spend less. And while we discount them as economically immaterial to the overall strength of this country, their numbers will be increasingly hard to ignore in an Escher economy. 

The late Mr. Escher unfortunately leaves us no answers to this dilemma. He unwittingly portrayed an American economy trapped by its own excesses. We are now forced to live with our gravitational limits even as we are challenged by the possibilities. For now, the participants who see a way out can only offer us a pathway that leads us back to where we are right now.

There is no clear escape from the confines of this economic gravity. History will point fingers at the cause but only time will offer a solution. Stabilized interest rates, a steadfast belief in our marketplace functionality and an increased rate of savings all have short-term downsides while having long-term benefits. In an Escher economy, we have learned that one person’s optimism is another’s pessimism. Or vice versa.

© 2006 Paul Petillo
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Blue Collar Dollar.com
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