Robert Samuelson urges us to change the focus of our attention from the business cycle to the financial cycle:
The Great Recession has inflicted enduring economic damage. Business investment has lagged; many workers have dropped out of the labor force. By early 2014, calculates the BIS, U.S. gross domestic product — the economy’s output — was 13 percent below where it would have been if pre-crisis growth trends had continued. In Britain, the gap was 19 percent; in France, 12 percent; even Germany had a shortfall, 3 percent.
Conventional business-cycle analysis didn’t anticipate these steep losses. It also missed other features of the post-crisis economy. Unlike earlier recessions, countercyclical policies — especially low interest rates by the Fed and other government central banks — have only modestly helped recovery. Low rates fail if borrowers don’t want to borrow or lenders don’t want to lend.
It is flabbergasting to me that we could adopt a whole set of policies including housing and transportation policies, immigration policies, trade policies, and inheritance policies, all of which tend to benefit the upper middle class and wealthiest at the expense of the poor and struggling working people and be surprised when incomes are increasingly concentrated in fewer hands. A century ago the poor and the rich lived side by side, inheritance taxes made it harder for the rich to transfer their wealth to their children, imported goods were a tiny fraction of what we consumed, and poorly run or profligate businesses were allowed to fail.
Nowadays the upper middle class rarely see the poor, people with advanced degrees almost invariably marry other people with advanced degrees, and we subsidize banks and large companies. How far we’ve advanced@!