I find books like Tyler Cowen’s The Great Stagnation to be refreshing and valuable not because they are right or wrong but because they offer a different perspective that what we are commonly fed. Much of our policy from both sides is an opinion of how to return to a ‘normal’ that was never normal to begin with. Other very different perspectives are Fooled by Randomness and The Black Swan by Nassim Taleb, The Way the World Works by Jude Wanniski, or even A Demon of Our Own Design by Richard Bookstaber.
Paul Krugman thinks that by raising taxes and supporting unions we can return to the egalitarian 1950’s, without acknowledging how different we are globally. In those days we were competing against a Europe and Asia that had been devastated by WWII. Supply Side economics- a theory I greatly support- was very successful in the 1980’s because there were immense resources in tangible assets as a result of Nixon’s and Carter’s inflationary policies that were transferred into financial resources once we believed that inflation had been subdued. Today, tangible assets like real estate have been devastated and we may not see the same results. (remember how few Republicans supported Reagan and his ‘voodoo’ economics.)
We are, however, sitting on large sums of cash that businesses are not deploying. Part of the reason is the lack of demand as a result of the unwinding of debt, but part of the reason is the uncertainty of the effect of three thousand page bills few understand, the certainty of tax increases embedded in the bills already passed, and the bully pulpit class warfare that is stifling further investment. The president thinks you can continuously milk a cow without ever having to feed it,
In general- central economic planning – whatever you call it – does not work well. Government cannot solve all our problems. Keynes was wrong- with FDR and Nixon and Obama. The best explanation of the recent economic crisis was “we were not as rich as we thought we were”.
I find Cowen’s most intriguing idea is that the new economy blogs and social networks of freely exchanging information by schmucks like me is extremely unmaterialistic, but it generates no revenue and will not rescue this economy. We are governed by a group that decries materialism, yet requires it to overcome a stagnant economy and fund its very expensive social programs.
We cannot gamble on new yet to be discovered technology to save our ass. We have to make do on the revenue we currently have.
Every business that has survived the last few years knows that.