2008 was to the American economy what 9/11 was to national security. Yet while 9/11 prompted the U.S. government to tear up half the Constitution in the name of public safety, after 2008, authorities went in the other direction.
GUYS WITH BALLS MADE OF CRYSTAL. I steer clear of economic forecasting both because I don’t think you can forecast with decimal point accuracy with any consistency—though through sheer luck you will be right every so often—on the stopped clock principle—and because it’s not my area of interest. Also, though I believe in planning (what an Israeli general once memorably called “A common basis for change”) I am far from sure of the point of issuing a stream of unreliable forecasts—except to keep economists busy and politicians something to talk about.
MY BIAS IS MORE TOWARDS DETECTIVE WORK (Well, what else can you expect from a thriller writer!) What fascinates me are:
- HUNTING. Tracking down policies that work.
- IDENTIFYING. Identifying structural problems that stop the economy working.
- SOLVING. Finding solutions to those structural problems.
- PERSUADING. Implementing both policies that work and structural solutions. In practice, since last I checked I wasn’t either president or in any similar position of power, that tends to mean making the case through writing or public speaking. To what purpose? To make the world a better place—and for the sheer intellectual satisfaction of it all. What can I say! It beats golf or chess, as far as I am concerned, and you can devote just so much time to sex at my age (though I’m open to persuasion).
AN ECONOMIST’S BEST FRIEND—CONFUSION. Economists get around the forecasting issue by making constant revisions to the point where the average person is so confused that they can’t remember who said what and when—and the media seem to go on reporting forecasts regardless of the track record of the pundit in question. Name recognition counts for a great deal more than accuracy.
Curiously, the media seem to devote remarkably little effort to tracking down policies that work—which is rather sad. But the media these days are more about process than investigation. Filling the time—as far as many are concerned—seem to be regarded as a great deal more important than finding answers. Mind you, it’s hard to blame the media. Their ranks have been thinned drastically over the last decade—with investigative journalism being cut back to near the point of elimination—and investigation is innately risky. Trust me on that latter point. I have first hand experience of the price one pays for uncovering unpalatable truths.
But enough of the media. Now, I’m not going to forecast—but more to raise some issues which make me think that this current relative optimism about the economy—best personified by the stock market—is misplaced.
- STRUCTURAL PROBLEMS. Most haven’t even been identified publicly—and virtually none are being addressed.
- DEMAND. Business cannot squeeze worker earnings indefinitely and expect sales and profits to rise inexorably.
- EARNING POWER DOWN—COSTS UP. Strip out the top quintile, and the earning power of most Americans continues to decline. Meanwhile, a wide range of prices is increasing.
- LABOR RELATIONS. U.S. labor relations suck—and nothing is being done to improve them. This gives our competitors a decided advantage—which we ignore at our peril.
- CORPORATE EARNINGS. These do not bear close investigation in many cases—and corporate share buybacks (which constitute insider trading and should be illegal) are further distorting the picture. IBM is a case in point.
- PRODUCTIVITY. There is a difference between statistical productivity improvements and real increases in productivity. Our statistics have long painted a rosier picture than was justified.
- RESEARCH AND DEVELOPMENT. Government has long made a much greater contribution in this are than is generally admitted. One consequence of the Republicans obsession with austerity is that government investment in R&D has been cut back. Couple this with corporate short-termism, cash hoarding, and refusal to invest, and the longer term consequences are likely to be negative.
- TECHNOLOGY. I’m very upbeat on technology despite the serious underinvestment. However, we have to face the fact that many technological breakthroughs also lead to job elimination—and we still don’t have adequate policies to deal with this.
- INFRASTRUCTURE. It continues to crumble and we continue to do almost nothing about it.
- THE FINANCIAL SECTOR. This has been substantially re-built thanks to virtually interest-free money from the Federal Reserve. However, not only is that not necessarily a good thing in itself, but it hasn’t resulted in the kind of investment in the real economy which we need. Worse than that, the financial sector’s recent involvement in the housing market shows every sign of driving house price up beyond the affordability level of many Americans. In short, the Fed’s policies may be good for the financial sector but they are decidedly harmful in other ways. Beyond that, we are not addressing the fundamental issue of financialization. Here, there is increasing evidence that too much financialization drags the economy as a whole down.
- HEALTHCARE. This continues to cost more and more while most Americans earn less and less. It also delivers inferior results. This is just not a sustainable situation.
- CORPORATE BEHAVIOR. CEO pay continues to rocket, worker pay continues to be squeezed, cash continues to be hoarded at the expense of investment, and the stock market continues to be manipulated through share-backs and dubious figures.
The above is just a quick look at our situation, but I just don’t see how we can climb back to a healthy normal economy in the context of the above—and there is much I haven’t touched on such as student loan debt and the excessive amounts we spend on National Security.
But, now I had better stop before I drive you to drink, drugs—or to jump out of the window. Actually, statistically, you are probably already on drugs—legal or otherwise (the U.S. is the most drugged nation in the world)—and, speaking as an Irishman, I find it only natural that you drink. So all I can say is—stay away from windows!