Time For a New Economic Model

Commentary on the euro crisis tends to point to what governments should do to get over this hurdle and back to growth. The flaw in the argument is that we cannot go back to the way things were; our model has been based on massive overextension (normally referred to as a 'bubble') and is unsustainable. That was the lesson of Lehman, and this is the prolonged agony. We haven't learned the lessons yet; we haven't changed our model. And so we are bound to bang our head against the wall for more pain, until somehow we become enlightened. In psychology, that turning point often doesn't come until the pain is so great we hit bottom.

Wouldn't it be nice if, instead, we could take a more rational approach: step back from the wall, look around, take stock of all our options, weigh short-term gain versus long-term pain? Maybe switching to a mentality where we are OK with short-term pain because it will bring long-term gain.

Parents try to teach their children to think longer-term, not to focus on immediate self-gratification (such as grabbing a toy from another child), to think about the group as a whole.

Even if Europe quickly pulls itself together, Greeks agree to adopt German retirement ages and fiscal rigor, tax evaders are raked in and European debt is pulled into a single bond market where overall government debt stands at 88% of GDP, that will not be enough.

We need to re-evaluate our business model. I would not want my family to have credit card debt amounting to 88% of our annual income and the constant temptation to refinance and spend more ad infinitum. We have seen that our credit-driven competitive economic model creates huge wealth for a few, exacerbates the gap between rich and poor, favors bubbles with devastating hangovers, and produces anxiety, not happiness.

There are lots of new ideas floating around, models for sustainable development based on cooperation and long-term gain for all. This is our golden opportunity to adopt them.