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A few years ago I was into figuring out how the economy works. What I found out horrified me. But slowly that horror turned into a realization that this knowledge is powerful.

In my interactions with colleagues, most focused on just doing the science. Unfortunately there there are factors that go way beyond good science, that influence the science that gets done, and when. One of those factors is the economy. It’s the thing that ultimately pays for science to be done.

I’m not an economist, so you can make what you will of the following, but I’d like to explain a few of the things I learned in my bout with figuring the economy out.

Japan sets the example… of what not to do

To best illustrate what’s going on in many Western countries right now, look at Japan in 1991, after their great real estate implosion. After reaching stratospheric highs, property and stock market values collapsed, leading to the ushinawareta junen, or “lost decade”: an ongoing slide in property values, stock market, and economic wellbeing that has actually continued to the present. Not only that, but the debt-to-GDP ratio is high, the stock market falters, and the economy is not what anyone would call booming.

An entire “lost decade?”

How can a whole decade (or two) be lost, and what does this tell us about the situation in the US and other western countries? The Japanese experience was that of an asset bubble implosion, followed by repeated attempts reinflate the burst bubble. Soon, a regular cycle developed (and is developing in Western countries), that goes something like this:

1. Politicians notice that the economy falters, with lots of people suffering. Their constituents put pressure on them to do something.
2. The politicos start pumping monetary and governmental stimuli into the economy.
3. The economy sluggishly responds to stimuli, not returning to its former pre-bubble status, but doing better than during the worst times.
4. Fiscal conservatives, in particular, start raising a hue and cry about all the stimulus money, and warn about the debt it is creating.
5. The populace notices creeping inflation in food and other commodities, occurring as a response to the debt and money creation.
6. Politicians react to the hue and cry about debt, printing, and inflation by enacting “reforms” that cut back on the stimulus.
7. In response to the reduced stimulus, the economy sinks back into recession.
8. Repeat.

The presence of Tea Partiers signals that we’re almost at step 8

Japan went through this cycle at least three times. The US is on the first such cycle. The Tea Party movement is the hallmark of our position at about step 6, and we’re just starting to enter step 7, before we repeat.

And the scariest part is that the US, and some European countries, may not be able to go though steps 1-3 many times before our currencies vaporize in a bout of hyperinflation. Too much debt and money creation can lead to a lack of confidence in the value of currencies–just check out the Argentine economic crisis of 2001.

Few alternatives left

But there are few other viable alternatives that governments can implement. If governments do nothing, an economy can quickly sink into a very deep depression. This ultimately ends up “cleansing” all the excesses, such as bad banks, but in the meantime brings massive dislocations, such as homelessness, joblessness, starvation, and even wars.

The government might also try to reinflate the economy with another asset bubble. In fact, the housing bubble was a reinflation attempt after the Internet bubble collapsed. While this can cause a short term boom (as it did in housing), the end results can be dire, as with each successively bigger bubble comes a bigger collapse at its end.

What this means for science

Science, technology, and small businesses (STSB) are the three things that should be at the core of any recovery. Unfortunately, our leadership has been more interested in propping up ailing banks (and their multibillionare backers) than in deep, long term investments in any STSB.

In the longer-term (10+ years), it remains to be seen whether the message will get through that we have to do more for STSB, or we may never–at least within our lifetimes–recover from the problems. In the short term, politicians seem mostly clueless on this point. Which doesn’t bode well for science funding.

A holding pattern

This is not like past periods when science funding got tight for a while (1-2 years) before recovering. It’s already been four years, with no end in sight. The best we can hope for is a holding pattern, with small variations up and down with each stimulus-cutback cycle. Yep, it’s going to be a wild ride.

Universities have made the situation worse by going on a “hiring on spec” binge: rather than setting aside real salary lines for faculty, universities figured that the new hires could just bring grants to cover themselves. It is a win-win for the university, but a lose-lose for the new hire and everyone else, because it overloads the grant system and kills researchers’ morale.

What to do next

It’s not pretty. But there are some steps you can take to mitigate the challenges:

1. Realize that funding problems aren’t going away soon, that this is not just a temporary glitch, and that it’s going to require some new approaches to stay afloat over the next few years.
2. Develop a mindset of learning new survival skills. There will be many challenges that may come which won’t be readily addressable using skills that were developed in easier times.
3. Be entrepreneurial. That’s a bit of a buzzword but really it just means figure out how to turn lemons into lemonade (and then how to sell the lemonade). Use your creativity to solve challenges–not just technical science challenges, but also challenges such as keeping your science going.
4. Learn to be more efficient. Many get caught in a trap of ever-increasing amounts of grant writing and administration, working all the time, getting stressed out, and becoming less and less efficient in the process. Rather, do what truly effective business leaders do, which is to make themselves more effective and efficient.
5. Educate the public around you about the value of science, so that they understand the need to invest in science for the long term. This is vital to getting a real economic recovery.

Science Optimizer System (SOSv)

In order to help scientists with numbers 2, 3, and 4, I’ve put together a free video series that goes into how to systematize and optimize your science. You can check it out over here.