In my last post, “Can the U.S. Economy Do Better?” I laid out the view of the Hoover Institution economist John Cochrane that a few basic changes such as deep tax reform, a thorough overhaul of social programs, more educational competition and regulatory simplification would go a long way towards perking up the economy.
The banker and financial analyst, Satyajit Das, presents a contrary point of view in, “The Age of Stagnation: Why Perpetual Growth is Unattainable.” According to Mr. Das:
- The Global Financial Crisis (GFC) was not part of the normal boom and bust cycle, but rather the collapse of the postwar economic expansion under the weight of four main factors: high debt levels, large global imbalances, excessive financialization and an unsound build-up of future entitlements.
- The economy risks becoming trapped in a QE-forever cycle. A weak economy leads to expansionary fiscal measures and Quantitative Easing (QE). If the economy responds then interest rates will go up and lead to a debt crisis. If the economy does not respond, then there is pressure for additional stimuli.
- The economist Robert Gordon predicts that the future U.S. growth rate, adjusted for six big headwinds (demographics, declining educational attainment, rising inequality, effects of globalization, environmental costs, and debt overhang) may only be .2%, well below the 2.1% growth rate of the past few years.
- The GFC may signal the zenith of globalization. The U.S. could function successfully as a closed economy, with foreign trade making up only 15% of GDP. The European Union and China could also turn inward. The rise of autarky and nationalism is a dangerous cocktail.
- Financialization drives inequality. QE and low interest rates encourages high-income households to increase investments and therefore boosts the stock market. The increasing cost of healthcare, higher education and childcare is a big burden on low-income households.
- Financial repression is increasingly accompanied by political repression which engenders lack of trust which in turn drives political disengagement and social disorder.
Ouch, ouch, ouch! This is a very negative assessment of the U.S. economic and social scene today. But I report the views of Mr. Das because they are reality based and need to be dealt with.