Tuesday, May 19, 2015

Can we have more butter, please?

For a long time, in blog-years, I have been worried that the Great Recession and the anemic recovery are not any temporary issues but that they could be reflective of serious transformations in the economic structure.  Nothing in the American economy, nor in the global economy, has given me reasons to think otherwise.  The only good news is that students do not come asking for career and employment advice--because, if they do, then I would end up sharing my gloomy assessment, which will not do them any good.

But then, thankfully, I am only a nobody harboring such worries.  It is not like such assessments are in the New York Times, in analyses authored by respected economists who are not of the "loony left."

Oh, wait, here is Tyler Cowen writing in the New York Times
the recession was a learning experience that we haven’t fully absorbed. From this perspective, the radical and sudden changes of the financial crisis were early indicators of deep fragility and dysfunctionality.
In case you are not aware of Cowen, he is is an economics professor at George Mason University.  Cowen and his folks at George Mason are far from the "loony left."  Check out the blog that Cowen and his buddies run in order to understand their approach to public choice policies.

Anyway, back to Cowen's NY Times piece.  The title of that says it all:
Don’t Be So Sure the Economy Will Return to Normal
Welcome to the "new" normal!
Slowly but surely, we may be responding to these difficult revelations by scaling back our ambitions for the economy — reinforcing negative trends that were already underway. In this troubling view, we have finally begun to discover some unpleasant truths. Borrowing a phrase from the University of Toronto economist Richard Florida, it’s possible that we are experiencing a “Great Reset.”
So, what do we do then?  How can we reset this Great Reset?
If a reset is underway, we might have to accept that public policy cannot reverse it easily. Once unsustainable economic structures begin to fail, it takes a significant improvement to make them viable again. Yet because of the difficulty of making major changes under our current political alignment, most new government policies today are no more than changes at the margin. Perhaps the most basic problem is that it is difficult to be sure when a reset is underway, and it is harder yet to raise public alarm about changes that seem to be gradual and slow.
Most of all, it is not always wise to fight a reset.
Perhaps the most crucial issue is whether economies will return to normal conditions of steady growth, or whether we are witnessing a fundamental transformation, unveiled in bits and pieces. Nominations for the nature of that transformation include a “robot economy,” a new political economy where elites have too much power or, perhaps, a new global economy where the United States no longer holds such a dominant position, to the detriment of American firms and workers.
No one knows whether or how much of a reset may be underway.
It is rare for economists to openly admit that "no one knows."  Which means only one thing: things are not looking good.  They are looking real bad.

BTW, here's one more worry, which is more like a corollary.  When the American economy falters, staggers, guess what the bipartisan approach is to revving up the economy?  Think.  Think some more.  Yep, war.


Ramesh said...

Yes, you have been blogging for quite a while on the new normal and I think that is absolutely spot on. There have been structural shifts in the global economy and a fair bit of it is to America's disadvantage. It is certainly tough on you guys.

But you might want to consider and debate on the completely dysfunctional governance system you are rushing headlong into. Any problem can be "solved" or at least "mitigated" if there is some action. In the last decade your political system has brought everything to a grinding halt. Nothing can be "done" in the US anymore. You deserve to have an honest debate about your governance system instead of worshipping the altar of your founding fathers and the Constitution. Frankly, there are large parts of your Constitution, that may have been appropriate in 1776, but are almost loony now (consider the Second Amendment - you have the right to form a militia ??). And you have a system wherein not even one comma in your Constitution can be amended.

Global shifts in the paradigm are inevitable. The question is what can the society do to adapt and take advantage of the shifts. I would recommend a series from you on changes to your governance mechanism.

You are not a nobody. In your culture, one of the great things is that ideas matter; not the person saying it. Give it a shot.

gils said...

in country like India..growth or economic recovery is often heard with infrastructure improvement or enablement in first place. so many places without electricity or roads or transports or water. you name it you can spot it and improve on it and hence the so called growth. this is my myopic understanding of our economy. with yardstick..what can US do? I don't think they need even more roads or electricity or water for that matter!! whatever others are doing they've already been there and done that. the natural way of progression looks outside of US for the Americans than inside. May be we are heading towards a new imperial policy where countries in debt can be taken over by their creditor nations..literally and figuratively!!..avvvv..economics paperku answer solra mathiriye irukku..ennamo karuthu solla varen ennanu yaarukum puria koodathu

Sriram Khé said...

Interesting times in which we live!

It is tough for the US is obvious, but less obvious is how the shifts will become way tougher for a country like India. In previous posts, I have worried that the technological progress means that India will not experience the kind of job generation that China experienced--the jobs/$$$ will decrease faster than imagine.

The political process that we have, as messed up as it is, is not the hassle--the challenge comes from the rapidly changing (global) technological-economic-structure. My next blog-post will add to this discussion.

Face it, Ramesh: I am a nobody ;)