Allow me to repeat something I wrote in Saturday's post It Would Make You Feel You Uncomfortable. I was talking about the mounting public debt.
Let me tell you some things I hope you already know. One day this irresponsible (and mounting) government debt accrual and the current low borrowing rates are going to come to an end. The longer the government waits to do something about future bills it can't pay, the greater the reversal will be. The government will have to run, not walk, in the other direction, making dramatic cuts to this program or that program. All of this budget slashing will undoubtedly decimate programs ordinary Americans count on to get by. It will be a massacre.
It used to be the case—it is still the working assumption—that future growth would pay for current borrowing. This has been likened to a Ponzi Scheme. All such schemes must eventually end. Future growth somewhere close to the magnitude required will not be forthcoming. Don't look for it, it's not going to happen.
As far as I can see, and bearing in mind that the nobody knows the future, what I wrote on Saturday is God's Honest Truth. You would be hard-pressed to dig up any evidence suggesting that our economic future looks bright, not only here in the United States but also in the global economy. Consider this text and graph from The Economist (hat tip Tim Iacono).
The world’s economic growth continued to slow in the final quarter of 2011, according to The Economist’s measure of global GDP, based on 52 countries. Year-on-year growth fell by just under one percentage point to 2.5%. Developed countries’ average growth slumped to less than half a percent despite a small uptick in the third quarter. The BRIC economies saw declining growth for a seventh successive quarter. In Europe heavy austerity measures have stifled growth; the economies of the Netherlands, Greece and Italy all contracted in the fourth quarter. Oil prices, which recently rose over $128 per barrel, are placing new pressure on the global economy.
The news is not all bad, however; America's job market has started to pick up speed again. The latest quarterly results show the biggest increase in employment added since April 2006—a good start to the new year.
[My note: The "BRIC" economies are Brazil, Russia, India and China, in that order.]
If you are looking to the official, statistically manipulated jobs numbers to give you an emotional lift, you are obviously grasping at straws. See my recent post Our Phenomenal Jobs Growth Makes No Sense.
Now, even mainstream (i.e. clueless) economists are asking the hard questions about future growth. In the New York Times Economix blog, Binyamin Applebaum asks Are the Good Times Never Coming Back? He was reporting on an academic study called Disentangling the Channels of the 2007-2009 Recession.
The authors use a complex model —"a high-dimensional dynamic factor, linear time series model (DFM)"—as they struggle to sort out their own considerable confusion. For those not initiated into the economic mysteries, reading the study is a lot like reading ancient Greek. For your edification, I simply note that the words "debt" and "bubble" appear nowhere in the document, although the word "oil" does. Kudos to them! Here's Applebaum—
There is growing chatter in economics circles about the unsettling possibility that the nation may never recover completely from the recent recession.
Recessions are generally regarded as abnormal disruptions and recoveries as inevitable returns to normalcy — in large part because that is how the economy has behaved for more than a century. Even after the Great Depression, growth returned to its long-term trend; it just took a while.
The bleaker view — which remains, to be sure, the view of a distinct minority — is that the years before the recession were abnormally good, and that while the recession was abnormally bad, reality lies halfway in between.
The present situation, in other words, is about as good as it gets...
Yes, there's no reason to worry. After all, only a "distinct" minority holds the "bleaker" view.
The authors argue that the slow pace of recovery reflects a long-term deterioration in economic prospects. Specifically, they estimate that the trend growth rate of gross domestic product fell by 1.2 percentage points between 1965 and 2005...
The economists who wrote the new paper, James Stock of Harvard and Mark Watson of Princeton, contend that the key reason for the faltering pace of growth is that the work force is expanding more slowly.
Population growth has slowed, and so has the pace at which women are entering the labor market.
“These demographic changes imply continued low or even declining trend growth rates in employment, which in turn imply that future recessions will be deeper, and will have slower recoveries, than historically has been the case."
Say what? Our economic problems are due to slowing population growth? Because fewer women entering the work force? If that's really their argument, that's easily the most ridiculous thing I've ever read. Well, OK, maybe not, but it's right up there.
... Indeed, recent growth has actually outpaced their expectations.
“The current recovery in employment is actually faster than predicted,” they write. “The puzzle, if there is one, is why the recovery was as strong as it has been.”
This general theory about the power of women has been propounded before, notably by the economist Tyler Cowen in his recent book The Great Stagnation.
In the current context, however, [this study] is also deployed as a rebuttal to the many economists who regard the slow recovery as a consequence of the unusual nature of the recession. One such view holds that financial crises are particularly traumatic. Another common theory holds that high levels of debt are restraining growth.
Both of these views carry the implication that the good times will return...
I refuted the view that the good times will return in This Time Really Is Different (and also see Part II). I am not going to argue with clueless economists other than to say that their view of the economy takes place in an historical vacuum. In this sense, it is ahistorical. The business cycle is timeless and inevitable, but only if the working population (including more women) continues to grow as well. Wow!
- It doesn't matter to these economists that wealth & income inequality has been rising precipitously for 30 years now, that America has been hemorrhaging good paying jobs (mostly in manufacturing) for decades now.
- It doesn't matter to them that college and health care costs have significantly outpaced the "official" inflation rate all that time.
- Astonishing levels of household, private (corporate) and government debt don't matter to them. (Only a very tiny minority of economists think debt matters.)
- Neither does it matter to them that most of the so-called "growth" we enjoyed between 1995 and 2007 was due to two massive economic bubbles.
- It doesn't matter to them that crude oil prices started rising in 2003 and that high oil prices are never going away unless the global economy crashes as it did in late 2008.
- And it also doesn't matter to them that our changing climate is going to disrupt human economies more and more as time goes on.
None of this matters to economists. And this list is seriously incomplete. Why didn't I see it? (Smacks self on the forehead.) Our problems are demographic! (But not the way you might think.) The working population isn't growing fast enough and fewer women are entering the labor force. And Boomers are retiring. Alternatively, we're screwed (temporarily) because financial crises are always really bad and it takes a while to recover from them, but eventually it will all work out.
Of course we could easily solve this demographics problem. We could simply repeal the child labor laws. No more video games for you!
Unbelievable. Some people actually get offended when I refer to the human world as Planet Stupid.
Bonus Video — Antony Davies, Associate Professor of Economics at Duquesne University, talks about government debt (thanks again, Tim).