The Mother of All Bubbles
The original (Spanish) version of this post can be found here.
If there is one event that defines our lives, it is the 2008 financial crisis—the one we now call the "Great Recession."
The crisis hit us either just as we were entering adulthood or about to do so. When the global economy collapsed like a house of cards, layoffs among those under 24 were five times higher than among those over 45. If you're under 45 today, there's a good chance you were one of them.
We've heard endlessly about the magnitude of the tragedy: the people who lost their jobs, their homes, the banks that failed, dragging entire industries down with them, and the wave of business closures. The world cannot be understood without the Great Recession.
But there’s another truly extraordinary aspect of that crisis that is rarely discussed: in 2008, something happened that had never happened before—the world stopped growing. There was a before and after.
Since the dawn of the industrial age, every past crisis had been followed by a rebound, bringing things back to normal. But after 2008, economic growth never returned to what it once was. There were no longer more and better jobs. The new jobs were poor, precarious, with little chance of upward mobility. Housing remained as unaffordable as it was before the crash, and low wages were now coupled with the burden of rent or mortgages that ate up most incomes. Families, where both partners are now required to be professionally competitive, live overwhelmed by household chores, expenses, and work.
It is this anomaly, more than the crisis itself, that has shaped our lives since then. What happened during the Great Recession that was so different from the rest of history?
No economist has yet been able to explain why the world never returned to its growth trajectory. Economists refer to this phenomenon as "the productivity puzzle."
Productivity in an economy is what it produces, divided by the amount of work used to produce it. Imagine a tiny country that only produces corn. If it produces €100,000 worth of corn annually with 10,000 hours of labor, the productivity of that country is €10/hour.
Productivity growth is the improvement in output per unit of labor. If, over time, that country finds more efficient ways to grow and harvest corn, it could increase its output with the same amount of labor. If new technologies or techniques allow it to produce €120,000 worth of corn with the same hours of work, that means its productivity has grown from €10 per hour to €12 per hour—a 20% increase.
During the industrial era, and especially in the late 20th century, productivity grew at a rapid pace. But around 2000, it stopped growing. And no one knows why. If we have more and better technology, and we seem increasingly capable of producing more with less, why isn't productivity increasing?
And hidden within this seemingly technical dilemma is a colossal problem: the promise of progress that had sustained us for decades was based on the idea that productivity would continue to rise with technological advances. The belief that wages would improve, wealth would increase (and be better redistributed), and more and better companies would emerge with ever more productive jobs was rooted in the assumption that productivity growth was inevitable.
As Nobel Prize-winning economist and global social democracy guru Paul Krugman puts it: "Productivity isn’t everything, but in the long run, it’s almost everything. A country's ability to improve its standard of living depends almost entirely on its ability to raise output per worker."
And the problem is that since productivity stopped growing, no one has come up with an alternative idea of progress. Instead, we act as if we’re still waiting for the good times to return, like waiting for Godot—except no one has a roadmap for bringing them back. We live in a society without a plan. Without a vision of progress or a good life.
And so, something grotesque happens: since we have no alternative plan, no one dares to question whether the one we had was even viable in the long term. Strangely—or perhaps not so strangely—neither economists nor politicians ask whether the 20th-century growth rate was sustainable. Not because of planetary limits (which is another debate), but simply because it might not have made sense. Was there really a viable future in the direction the world was heading?
The future envisioned by society at the end of the 20th century assumed that high growth rates would continue for many years. In the year 2000, Time magazine published a special issue on what the world would look like in 2025:
"Hunter-gatherer economies dominated for hundreds of thousands of years before being eclipsed by agrarian economies, which ruled for about 10,000 years. Then came industrial economies. The first began in Britain in the 1760s, and the first to end began disappearing in the United States in the early 1950s. We are now halfway through the information economy, which, from beginning to end, will last 75 to 80 years, concluding in the late 2020s. Get ready for the next one: the bioeconomy!"
The bioeconomy was supposed to be a world where the most in-demand jobs included “tissue engineers” designing new types of skin or human organs, “genetic programmers” modifying people, and “farmaers”—halfway between farmers and pharmacists—growing hybrid food-medicine products like antibiotic tomatoes.
Not only is it obvious that this hasn’t happened, but we also now know that progress, when transitioning from the industrial to the information society, no longer creates factory jobs. Instead, it creates many bad jobs in basic services and a handful of very well-paid jobs in information technology. After a certain point, technology does not increase productivity—it reduces it. Productivity was an indicator of the industrial society, and it is dying with it.
In hindsight, it’s easy to see that maintaining pre-crisis growth levels was impossible simply because they never made sense—even at the time. The general consensus about the future in the '80s, '90s, and 2000s was a techno-utopia where the least absurd idea was flying cars.
At the end of the 20th century, the world was drunk on progress. And as the millennium turned, that drunkenness turned into a monster.
In 2006, Cajamadrid aired the following commercial, which you have to see:
How could a public savings bank broadcast on television that money makes us free, young, and attractive, and allows us to have as many children and marriages as we want?
Some data:
Between 1990 and 2008, the amount of money in circulation worldwide increased fourfold.
Public debt soared beyond World War I levels, reaching a record low surpassed only by World War II figures.
And this is what happened to the stock market:
And with housing prices:
Were these trajectories sustainable? Or was that society a gigantic, monstrous bubble that no longer made sense once people already had too much of everything?
Nothing illustrates that intoxication and the absurdity of the 20th-century society’s vision of the future quite like the mass production of university graduates.
Between 1985 and 2020, the number of university students doubled. In Spain, in 1986, just under 20% of young people under 25 were in higher education. Today, nearly half of those under 34 hold a university degree. In the U.S. and other countries, the numbers are very similar.
Meanwhile, the number of jobs requiring a university degree is declining, and 25% of European graduates are overqualified for their jobs (in Spain, that figure rises to 40%).
Universities around the world continue to churn out graduates each year—far more than the job market will need in the foreseeable future. And when these young people enter the workforce and fail to find the jobs they expected, we blame them, saying they should have studied something else, like engineering. Yet we keep producing thousands of graduates year after year, fully aware that many fields are already oversaturated. In Spain, about 10,000 people graduate in journalism each year, but there are only about 8,000 working journalists in the entire country. At the Faculty of Law at the University of Buenos Aires in Argentina, nearly 40,000 students are currently enrolled!
The number of universities and the spaces they offer was the realization of the 20th-century dream that all children could grow up to be journalists, lawyers, or whatever they desired. Their frustration now comes from facing the reality of the 21st century.
Economic growth between the 1950s and 1990s was largely driven by substantial and real improvements in people’s living conditions. Many countries built the bulk of their housing stock, infrastructure, and public services during those years, creating an industrial economy that fueled the dream of endless development.
By the 1990s, when this trend was already showing all possible signs of exhaustion, the world pressed forward recklessly. Many countries plunged into building more and more housing. Others created financial bubbles, such as the dot-com bubble in the U.S., followed by the toxic real estate asset bubble.
It was a runaway world—but one without a horizon, apart from the idea of throwing more coal into the fire, as if progress were a war that could never end.
When the bubble burst, there was no way to rebuild anything, because it had all been an enormous mirage.
There are several relatively simple things we could do to escape this historical dead end. One is recognizing that we don’t need people working 40 hours a week, or 35, or perhaps even 30. A four-day workweek is a tangible horizon of progress for all of humanity, one we urgently need to ensure that everyone can continue participating in the economy.
Another is acknowledging that a university education will not directly guarantee a job, but that doesn’t make it any less valuable. Wouldn’t it be wonderful to have those years (even for those of us no longer in our 20s) to study for pleasure or personal growth? When we have no idea what jobs the future will hold, does it make any sense to keep rigidly training young people for today’s jobs?
And finally, the task before us at this moment is nothing less than imagining and agreeing upon a new vision of progress for humanity. This blog exists to contribute, in a small way, to that effort. If you think this is an important task, I invite you to subscribe and add your own grain of sand to the discussion.
Onward!