The shame of the current recovery is made all the more clear by the growing presence of obfuscation about its real state. The economy is supposed to be in a cycle of full, self-sustaining growth, yet there is no end to the indications otherwise. Again, the employment market may (or may not) have attained the past cycle peak, but that is more indictment than evidence for proper function. Given the level of “stimulus” and the persistence of its applications, there is a desperate need on the part of orthodox ideology to offer some kind of explanation for the apparent and obvious inability to deliver.
The most public of these efforts is the newfound appeal of reducing estimates for economic “potential.” You can see why that is a tempting concept, as it offers seemingly an exogenous preservation of intentional redistribution – the economy itself is to blame, blatant monetarism only kept it from being worse. In some important respects, it really is reductionism to the same level of misdirection as jobs “created or saved.”
Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely.
Perhaps the height of this campaign are those words recently offered by economist Tyler Cowen, who theorized that maybe the downgrade in economic potential could be related to the lack of war recently. He’s not saying, apparently, that we need wars as stimulant, a la Krugman, but that the lack of war may account for deceleration. I’m not sure what is keeping anyone of this persuasion from making the leap from the latter to the former, but logic dictates nothing here.
John Tamny at Forbes does a tremendous job of taking apart this ludicrous suggestion, with the meat of it here:
Indeed, what all three remind us, and it’s something seemingly lost on Cowen, is that economic growth is really very simple. We all have myriad wants and needs, our production is our demand, so when governments remove the barriers to production, the individuals who comprise any economy tend to thrive. Thinking about the U.S. economy with the latter in mind, our economy is presently limp not because we lack some national, war-mongering purpose (apparently Cowen forgot all the national initiatives of the 20th century that robbed the world of well over 100 million people), but precisely because our political class has violated the four basics (taxes, regulation, trade, and money) to economic growth.
In my own analysis, of John’s “four basics” above money is the worst offender. This is not to downplay the others, but that the idea of monetary neutrality is so foul and dangerous as to have provided such academic cover to what amounts to a near-takeover of marginal action. Nothing in this economy is so much as debt-driven, which would allow war-like activity itself to fit so easily right inside the paradigm.
And that is largely the point I want to make here. That this ideology has grown so comfortable with the idea of redistribution that it seems “natural” to take it to extremes such as this. After all, intentional redistribution of inflation (asset or otherwise) produces inorganically winners and losers. The orthodoxy even acknowledges as much (Bernanke’s platitudes to savers and grandmas not having to eat catfood as evidence) but calculates that the intentional product of making “losers” is more than offset by the gain in economic advance.
Then-Chairman Bernanke spoke about this directly, noting his and the FOMC’s awareness of who gets to be in the “loser” category:
On the second concern, my colleagues and I are very much aware that holders of interest-bearing assets, such as certificates of deposit, are receiving very low returns. But low interest rates also support the value of many other assets that Americans own, such as homes and businesses large and small. Indeed, in general, healthy investment returns cannot be sustained in a weak economy, and of course it is difficult to save for retirement or other goals without the income from a job. Thus, while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.
Except now these same calculators are rushing to explain why the gains are not so compelling and fruitful; that the growing economy of low interest myth may just be that while the very real and deleterious costs pile up and multiply. It’s something that is happening in nearly every corner, among all contours, of not just the economy but the financial system itself. Growth fixes almost all problems, including grandmas catfood intake, but the lack of it speaks far more about the nature of redistribution itself.
To me, it is very simply. When crafting the foundation of modern soft central planning, the monetarists themselves recognized the dangers of such humanistic hubris. The mantra was that they could, “fill in the troughs without shaving off the peaks.” It has been repeated in numerous incarnations, but its spirit infects the very foundation of what is no longer really capitalism. Yet, that statement itself belies the seemingly assured nature of its prophecy – they obviously worried then about the potential for long-term damage since they alluded directly to it in the cliché. Now that it is becoming extraordinarily clear, even to them, that something “shaved off the peaks”, why be so surprised and look anyplace else?
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