Maybe They’re Just Happy With the Status Quo

by Dave Schuler on March 31, 2014

Robert Samuelson wonders if the slowdown in growth in the U. S. economy is permanent:

Economists’ pessimism emerges from their projections of “potential GDP.” GDP (gross domestic product) is the economy’s total output. Potential GDP is an estimate of what could be produced when everyone who wants a job has one and when businesses are operating at maximum capacity. Two factors govern the growth of potential GDP: changes in the number of workers (and time spent on the job) and changes in labor productivity. Productivity means “efficiency” and reflects many influences (technology, worker skills, management quality).

Potential GDP’s growth represents the economy’s speed limit when it’s near peak capacity. Trying to grow faster, it’s argued, will create shortages of workers, goods and services — and raise inflation. Even before the Great Recession, economists had lowered estimates of potential GDP, reflecting the anticipated exit of baby boomers from the labor force. But the recent revisions go beyond this widely predicted shift.

There are various explanations for why this may have occurred including demographic change, lack of “animal spirits”, reduced investment. Interestingly, he mentions a point I’ve made here frequently:

Another possibility is that the economy’s slowdown started before the crisis but was obscured by the artificial stimulus caused by the credit bubble.

I think the stage has been set for our economic problems for some time—twenty years or more—and a major factor is currency manipulation on the part of our trading partners. However, Mr. Samuelson also mentions a possible explanation that seems pretty likely to me:

Economist Robert Gordon of Northwestern University has argued that, since the early 1970s, technological advances have lagged and that the Internet boom of the 1990s was only a brief interruption. Naturally, productivity growth has suffered. Nobel Prize-winning economist Edmund Phelps of Columbia University, in his book “Mass Flourishing,” identifies a clash of values between what’s required for faster economic growth and what’s desired for personal security.

“Increasingly, the processes of a nation’s innovation — the topsy-turvy of creation, the frenzy of development, and painful closings,” he writes, are seen as something “that we are unwilling to endure any longer.”

This raises the question who is this “we”? As suggested earlier today some people are doing very, very well. My view is that they wouldn’t do nearly as well if we were following policies are than those we have and they’re fighting, successfully, to prevent us from adopting policies that would produce more robust growth. They’re just happy with the status quo.

{ 10 comments… read them below or add one }

... March 31, 2014 at 3:23 pm

They’re just happy with the status quo.

Given how many of the billionaires want open borders to encourage more unemployment and lower wages, apparently they aren’t happy with the status quo.

TastyBits March 31, 2014 at 4:37 pm

In 2008, the collateral that supported trillions of dollars of credit collapsed, and this was leveraged into tens of trillions of dollars of various financial securities. The bailouts kept all this financial paper from collapsing, and the financial sector was saved.

All the paper that was saved cannot be moved because it is not actually worth its face value, but it is still performing. Hence, anybody with these assets has income, but they cannot sell these assets to invest in something else. Like the underwater homeowner, they are stuck until the underlying asset re-inflates, or the bond/loan is paid-off.

Until the tipping point comes, there will be no investment in anything real. Had the collapse been allowed to occur, the recovery would have been underway by now. The saving of the financial sector benefited the rich, and it has been paid for by the poor and un/under-employed.

Ben Wolf March 31, 2014 at 4:41 pm

Naturally, productivity growth has suffered.
Nobel Prize-winning economist Edmund Phelps of Columbia University, in his book “Mass Flourishing,” identifies a clash of values between what’s required for faster economic growth and what’s desired for personal security. doesn’t appear to have noticed that productivity growth falls during periods of high unemployment.

Why, Mr. Samuelson, does productivity growth historically fall during periods of high unemployment if the problem is that people have no guts?

steve March 31, 2014 at 5:22 pm

I think that we will spend another 5-10 years cleaning up the aftermath of the international banking crisis, but longer term am more optimistic. I think basic science research is looking at many fundamental questions. We have learned to pool resources to do research that was unimaginable 40 years ago. I think this will give us more tech booms. I guess this could be undercut by a loss of funding if the anti-science people run things.

Steve

... March 31, 2014 at 6:34 pm

Lol, sure you’re optimistic, Steve. The government throws trillions at your sector of the economy.

Dave Schuler March 31, 2014 at 6:50 pm

Not to mention there are no real prospects that will change in the foreseeable future.

Andy March 31, 2014 at 8:15 pm

A couple million in lobbying dollars (in part) landed Boeing the largest tax subsidy in US history:

http://www.followthemoney.org/blog/2014/03/boeing-breaks-record-for-biggest-state-subsidy/

... March 31, 2014 at 9:01 pm

I’d say that was money well-invested.

... March 31, 2014 at 9:07 pm

I’m more tired than usual, but if I’m figuring correctly, Boeing is getting something like $4,350 return on every dollar invested in lobbying over a ten year period in Washington state. That is primo investing strategy!

Andy April 1, 2014 at 12:31 am

Yeah, pretty amazing, but their threat to walk away from WA was a huge factor. Synergy and all that…

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