I’ve just come up with what I think is a pretty succinct statement of my views on the economy. Let’s try this on for size.
Wages and prices remain above the market clearing level. Neither monetary nor fiscal stimulus can do much about this. Government spending can ameliorate some of the worst effects of the necessary adjustment. Bailing out the institutions that most need to adjust just prolongs the process.
You can debate my formulation or, preferably, give your own statement of the underlying problems with the economy.
Too much personal debt and too much inventory in housing and CRE. I suspect the banks are also still sitting on lots of bad debt. The 0% interest rates mean they are making big money again, but not from making loans. In theory they should be paying off their bad debts. In reality, they are paying record bonuses again, so their debt load is going down slowly. Not bailing out the financial institutions would have meant a depression rather than a recession. International banks would have tumbled like dominoes.
Beyond that, the US federal budget has been deficit financed since 1980. We are also seeing the effects of the rising powers taking over some of what we used to dominate. We are failing to innovate. Our foreign policy concentrates on war, not trade or economic issues.
Steve
Dave,
I can’t really argue with that. And what I see as a fundamental problem is that both the right and left are only seeing solutions in terms of their historical political narratives. The left looks to FDR and the 1930’s and right looks to Reagan in the 1980’s. I don’t think we’ll get any solutions to today’s problems until we get some leadership with at least a thimble of vision and an appreciation of today’s problems.