- The basic Rogoff/Reinhart observation that financial collapses due to asset bubbles just take a long time to work through. Given the size of the 2008 collapse, historical evidence suggests that it's going to take five or six years to recover, and that's that.
- The Tyler Cowen "Great Stagnation" hypothesis. We've picked through all the low-hanging economic fruit over the past century, and like it or not, we're now entering an extended period of low productivity growth because we're not inventing lots of cool new stuff.
- The related (I think) investment drought hypothesis. Ben Bernanke famously ascribed the housing bubble partly to a "savings glut" from overseas, and the flip side of that is an investment drought. The reason financial assets became so popular is that, even with all that money sloshing around the system, there simply weren't very many high-quality investment opportunities available in firms that make real-world goods and services, and that hasn't changed.
- The peak oil theory. Production of oil has pretty much maxed out, which means that every time the economy gets moving it will create a spike in oil prices, which will send the global economy back into recession. We're now in a continual oil-fueled boom/bust cycle that limits our long-term growth rate.
However, I also subscribe to 4) - the view that energy supply is a short-term-indispensible input to economic activity and that the liquid fuel component of the energy supply is currently constrained enough that significant bursts of economic growth will quickly run into this constraint and trigger oil price shocks. We've had two of those now in the last few years (2005-2008 and 2010-2011) and I've no doubt we'll see more. These have a strong tendency to be triggers for recessions or slowdowns. To Krugmanites this is an inconvenient fact to be more-or-less ignored but to me it's a central fact of our times.
If 1) and 4) were our only problems the solution would be "Green Stimulus": a massive program of investment in alternative energy and energy efficiency measures. By having the government borrow a bunch of money and use it to subsidize plugin-hybrids, electric cars, windmills, solar panels, etc, etc we could create a bunch of jobs now in the short term while setting ourselves on course to remove our oil dependence over the course of a couple of decades. Things would probably still be very tricky in the short term: we have huge sunk investments in buildings, infrastructure, and vehicles that are organized for cheap oil and those can only be changed out slowly. In the meantime, create too much economic activity and it will still trigger an oil shock. But we'd be moving in a better direction. Not, of course, that there's any chance of the current political system delivering this, but let's keep going with what we could do if we were smarter.
So then we have the problem of 5) too. The Chinese have cheap labor, cheap capital, cheap coal, and are buying US assets to keep their currency cheap too. This causes multiple problems for the "Green Stimulus" plan - one is that because US manufacturing is struggling to compete with Chinese manufacturing, a lot of the jobs would undoubtedly leak to China. Secondly, a large scale Green Stimulus would leave the US with an even bigger sovereign debt than it would otherwise have and it's unclear to me how safe it is for an economically uncompetitive US to try to navigate coming decades with a huge public debt.
I'm not sure I'm convinced that lack of talent has the same impact as everything else - and I'd actually suggest an eighth reason, related to number 4 and 5, but somewhat different from either - the interconnection between oil and food, which has grown tighter and tighter..
We know that the food price spikes have an enormous impact on world events - one only had to watch North Africa and the Middle East this spring. What is less explored is the degree to which food prices drag on developing world economies - from which much of the growth in consumer spending has been coming. When you still spend 25, 30, 40 or 50% of your income on food, food price shifts have an enormous amount of effect on what disposable income you have. As the Economist wrote in 2009, during an earlier wave of the food crisis, high food prices change the economy across the world dramatically:
Famine traditionally means mass starvation. The measures of today's crisis are misery and malnutrition. The middle classes in poor countries are giving up health care and cutting out meat so they can eat three meals a day. The middling poor, those on $2 a day, are pulling children from school and cutting back on vegetables so they can still afford rice. Those on $1 a day are cutting back on meat, vegetables and one or two meals, so they can afford one bowl. The desperate--those on 50 cents a day--face disaster.
Meanwhile, in America among the lower end of the "middle class," volatility in food an energy prices are simply scary - and they undercut consumer spending, If you never know whether your money will meet the end of the month, how much it will cost to fill your gas tank or feed your kids, you don't feel very secure about shopping - period.
Yet again, as food and energy prices rise and twine together, we see an emergent slowdown. Are these the only factors? Heck no - but leaving food prices and the food-energy connection off the table misses a major point.
The other important point is this - all these reasons for an economic crisis are not equal. You can educate more workers (maybe) or you can work through a crisis (eventually), but you can't get out of peak oil, and you have to make deeper changes than funding or waiting to disconnect fundamentals. Some of these are short term problems, or potentially short term problems. Others are longer term - and more profound. Moreover, the immediate short-term crises, once even partly resolved, dump you out further down the energy curve. They also will be dumping us out further into a growing climate crisis, which quite clearly will absorb more and more of world GDP. It isn't even running ever-faster to keep in place - no matter how fast you run, you fall behind. The only answer is to change the game.
The best method of obtaining growth again is to undo every left wing regulation since Carter. Let's put corn back into the mouths of hungry people and out my gasoline tank. Next let us drill for oil here inside the United States and then refine it and keep here to bring down oil and gas prices.
Next let us get rid of all this green shit that is holding back progress and real growth. Green jobs and green anything is just anothe rpathetic attempt by the left to future fund their own goals and prty by putting left wing labor unions into more power. Real growth starts at the individual, not a damned labor union.
Next we ipriosn everyone involved in the global warming redistribution of wealth hoax, stop giving outside countries OUR hard earned money, cut washington spening in half by next january by cutting any left wing liberal bullshit that could make its own money. That includes, museums, insect exercise projects, and any orther horse shit that is not constitutionally fundable. There are tens of thousands of stupid moronic government waste programs that could be cut by midnight tonight if we only had politicians with balls to do it.
Ever hear of the multi million dollar program to exercise shrimp on a treadmill to test their endurance? Who the fuck gave the go ahead for such a project? They should be arrested for it. These type of "scientific" bullshit projects is why we have 14 trillion dollars of debt.
Now all we can hear is lunatic communists talk about stealing money from "the rich" to pay for their own shortcomings. Even if you confiscated every penny of every person in America, the debt problem would still be enormous and the stupid programs that got us there would still exist.
I say we cut the UN, cut the IMF, cut the World Bank, abolish the FED, make our own oil and our own food and our own products and become a true sovereign nation again. If we could just get rid of these damned socialists we could be a thriving nation again instead of a nation of beggers and whores and handout recipients.
Who says the past wasn't better. The 1950s sure look go about right now. At least back then would could arrest someone for global fraud (global warming).
The only way to get America back on track to being what it used to be is to throw out the socialists and change things back to the way they used to be. To hell with a world economy. itwas better when each country was sovereign and economies did not depend on each other.
Of course a world government and world dictator couldn't take place without destroying capitalism first now could it? Think all of the economic and Islamic turmoil is by coincidence? Think again. Communists and socilaists have been working toward this goal for over 100 years now. Too bad they will burn in hell for it as we watch.
And there's your ninth and very best reason why the US can't return to growth--an educational system capable of producing an author of the previous comment.
I suppose it's possible that Economic Advisor is being ironic or sarcastic? It sounds a bit over the top to be serious to me.
It seems strange that Economic Advisor would feel a need to post here. Yet . . It certainly isn't the US education system that would support such a view point -- if anything, EA seems to be rebelling against everything the liberal education system teaches. And that might be the important aspect of that response, that there is anger and rebellion. It feels like an almost organized labor propaganda spiel, the last time I heard that "buy American" kind of parochial denial of reality (re: energy and oil availability) rant.
The changing weather patterns seem likely to reduce crop yields below expectations, and raise prices significantly. *sigh* And just when I had thought inflation was easing -- the short can of beans and wieners at WalMart dropped from 86 to 72 cents this month.
I wasn't going to comment on Economic Advisor, but agree with both Glenn and Brad K.
Especially in light of Brad's comment, I too can be quite a contrarian and could understand EA's screed in that light. I do think that the amount of unquestioned, one party, centralized command and control we are continuing to build into our society is only going to aggravate our poor situation. ( I consider the two party system to be mainly one party of two slightly different flavors.) In so much as the Tea Party is composed of grass roots people protesting the explosion of government, controlled by a rich elite and/or corporations, I understand that movement. (I also understand that since those first Tea Party days several years ago, the TP has been at least somewhat taken over, at least dollar-wise, by some big, behind-the-scenes industrialists like David and Charles Koch and Rupert Murdoch that aren't particularly well represented by the current Washington power structure and that people such as those three are attempting to use the TP to change that situation.)
Not that I agree, however, with all of EA's assertions, because I certainly don't.
Commenting briefly on Drum's ideas for lack of growth going forward, I think there is something to be said for Cowen's thesis that we've already snagged much of the economic benefits of the easily invented stuff. Yes, I read Stewart Staniford's comment too that this idea doesn't "pass the sniff test" coming from his point of view as a Silicon Valley guy and Stewart is right, on some kind of quantitative level, that there is a huge amount of technical invention and innovation still coming out of technological America that will undoubtedly add to the economic efficiency of our economy. Just the same, I can't help but wonder if the benefit of these latest innovations isn't too focused on the technical and economic elite of places like Stewart and Silicon Valley? I mean, robotics, from factory work to driving, is great for people like Stewart and especially the Larry Ellis' of the world that can now go out and get a yacht that's 100 feet longer all while most of the rest of us spend even more $$$ and time, educating and retraining for yet new jobs that will also be obsoleted away in only a manner of a few more years. I'm still thinking of Martin Ford's The Lights in the Tunnel idea where the benefits of technology accrue mainly to a smaller core of economic participants with time. That Stewart is right about the quantitative sum contribution of current innovations in development pipelines, again, I wouldn't doubt that. But there is a real world social component to it all that I don't think is being accounted for here (nor am I sure it can be quantitated.)
And no, I don't agree that the people Ellis temporarily employs to build his bigger boat makes up for the reduction in employment products such as his inflict on the economy. Basically, I don't think that all those people left unemployed by the increase in office automation products such as Ellis' will be freed to pursue employment of an equal value, going forward.
The term "Economic Advisor" is totally accurate and truthful in this instance. When you understand that "economics" is a completely failed science- precisely equal to alchemy and astrology; both of which were originally highly respectable (so they said). I do not jest; I mean that 100%. This one's advice is just as useful as all those schemes to turn lead to gold.
Enough troll baiting. Sharon; one of my consistent contentions is that the future will hold very very large surprises for us. Which does not mean "prepping" is not sensible; just that we should all be prepared to be completely wrong, no matter how hard we squeeze our brains. Meanwhile- I'm increasing my chicken flock.
I just learned about a "new" technology, which has the potential to make really REALLY big changes in world economies, and resource dynamics, forever. I mentioned it over on TAE, looking for anyone in that erudite group who was familiar with it- and got no responses.
A big part of our current civilization's structure and infrastructure depends on steel; both as structural skeletons and as reinforcement for concrete. All our concrete roads have steel buried in them; it's such a basic thing we hardly see it.
I was astonished when someone mentioned that a totally new kind of reinforcing rod (rebar) was now available- made out of.... basalt.
Yeah, volcanic rock rebar. I was a little more likely to listen than many, perhaps, since I already use basalt in my business- our potting mix contains "rock wool" - which is melted basalt spun out like cotton candy. It's flexible. The basalt rebar is complex; melted, fibers sometimes mixed with epoxies- still being invented.
Doing my homework, here's the "final report" for the National Academy of Something: http://tinyurl.com/3rpoxxe which says, basically; it works. No corrosion problems; same thermal expansion behavior as concrete...
Embedded energy in basalt rebar has not been calculated that I could find; but- it doesn't need mining or refining much; melts at a much lower point (iron ~ 2700 Â°F; basalt at 1450 Â°F); it's much lighter than steel; stronger in tension, blah blah.
Bottom line; what if all our concrete construction steel suddenly cost 1/3 of the energy it does now; and lasted 4 times longer? (I'm guessing, but that's close)
The technology has been around in Eastern Europe for a couple decades; and is spreading; still more expensive than steel and workers have to be retrained to install it; but- adopted sensibly, it could free up a LOT of resources for "civilization".
Other truly stunning innovations are visible; and of course there are the total surprises waiting.
So- anybody here ever heard of basalt rebar? Ever used it?
In many ways; in terms of understanding and managing world resources- our civilization has already stepped off the edge of the known world. Maintaining any real comprehension of what is likely next is a full time job. I'm so glad Sharon is working on it. :-)
Thinking like EA's is prevalent, see Tea Baggers, the Republicon Cult and their latest cast of clowns running for POTUS. They may be serious and they may be cynical, but they are wrong and dangerous. This is the kind of "reasoning" that gets us into the longest war in US history, millions dead and maimed, untold $trillions absconded with, collateral damage as far as the eye can see in every direction. As long as we have this kind of ignorance and disinformation left unchecked, we are aiding and abetting the sabotage of any great idea(s) we come up with for a better future. We need to educate the misinformed and censure (ala porn) dangerous disinformation. Then we have to prioritize the people, above all. Unite and Win!
Thanks for the great helpful info.