Several of my recent posts have been pretty gloomy. “Average is Over,” “What, Me Worry?” and “The Age of Oversupply,” for example. Here’s another gloomy one. The British economist, Stephen King, has an Op Ed column in last Monday’s New York Times, “When Wealth Disappears.”, based on his new book, “When the Money Runs Out.”
Our GDP grew at 3.4% per year in the 1980s and 1990s, then dropped to a growth rate of 2.4% from 2000 – 2007. Since the Great Recession ended it has averaged barely 2% per year. The Democrats say we just need more fiscal stimulus and monetary easing to boost the growth rate. The Republicans say deficit reduction including entitlement reform, slashing regulations and tax reform is what is needed to revive the economy.
“Both sides are wrong,” says Mr. King. “The underlying reason for the stagnation is that a half-century of one-off developments in the industrialized world will not be repeated.” These one-off developments are: the unleashing of global trade after World War II, financial innovation such as consumer credit, expansion of social safety nets which reduces the need for household savings, reduced discrimination which has flooded the labor market with women and, finally, the great increase in the number of educated citizens.
What Mr. King recommends is “economic honesty, to recognize that promises made during good times can no longer be easily kept. What this means is a higher retirement age, more immigration to increase the working age population, less borrowing from abroad (by holding down deficit spending), less reliance on monetary policy that creates unsustainable financial bubbles, a new social compact which doesn’t cannibalize the young to feed the boomers, and a further opening of world trade.”
“Policy makers simply pray for a strong recovery. They opt for the illusion because the reality is too bleak to bear. But as the current fiscal crisis demonstrates, facing the pain will not be easy. And the waking up from our collective illusions has just begun.”
It is obviously time to bite the bullet, lower our expectations, and start doing the hard work needed for even incremental economic progress.
This article expresses a few points very well. The strongest point he made is about reviewing commitments. I have a son who receives habilitaion services for his autism. With all tge sequestering going on President Obama was correct when he said it would be a matter of who gets what. My son who has no physical ailments just Autism and requires 24 hour care or his roommate who has physical ailments on top of his other developmental delays. It’s not fair to those who it affects.
It’s better to reevaluate programs establishing priorities instead of waiting for a phone call saying I am now responsible for his 7000 a month cost of care.
The other previous articles I didn’t think they were very realistic but this guy has some good insight.
Thanks for sharing this, Stephanie. I think that most rational people understand that we are highly over-extended at the federal level of government. What Stephen King is saying is that we need to give up our illusions that the economy is going to take off any time soon and enable us to grow our way out of the mess that we’re in. We simply have to be more cost conscious in everything that we do.