There seems to be a lot of pessimism going around these days. And I’m not referring either to Brexit or the candidates for the U.S. presidency.
The issue is slow economic growth. As I wrote back in February, while there’s a reasonable argument to be made that we would all be better off with less or no growth, capitalism
has a slow-growth problem. And that’s because growth is both a premise and promise of a particularly capitalist way of organizing our economic activities.
Well, that problem continues to be confirmed.
First, the International Monetary Fund [ht: ja] just announced that, in Italy, current slow growth (of 0.8 percent in 2015 and only 0.3 percent during the first quarter of 2016), on top of the two severe post-2008 recessions (when output fell by almost 10 percent), means that “the economy is not expected to return to its pre-crisis (2007) output peak until the mid-2020s, implying nearly two lost decades.” And, best I can tell, the “two lost decades”—with the resulting unemployment, stagnant wages, high levels of poverty, and growing income inequality—actually represents an optimistic projection. I’m guessing it’s going to be later, perhaps much later.
Then, there’s the report last week that long-term interest rates hit record lows, which is to say the lowest in the 227-year history of the United States. And while there’s no consensus over the meaning of the record-low rates not just in the United States but in Germany (where rates are now negative) and elsewhere, the “flight to safety” certainly indicates a growing acceptance of a pervasive reality—call it secular stagnation, a Japan-like deflationary spiral, or the continuation of the Second Great Depression—of low (and even negative) price increases and very slow growth.
Finally, there’s Martin Wolf [ht: bn], in the Financial Times (unfortunately behind a paywall), confirming Robert Gordon’s analysis that we live in “an age of disappointing growth because the technological breakthroughs are relatively narrow.” Basically, their argument is, the U.S. economy has experienced two periods of fast innovation: in 1920-1970 and, at a far slower pace, in 1994-2004. But that growth, based on increases in productivity, may now be over. And, on top of that, what increases there were in overall income during those periods were not evenly shared, especially beginning in the 1970s. And that trend is likely to continue.
Therefore, Wolf concludes,
The view that steady and rapid rises in the standard of living must endure is a pious hope. The tendency to believe that some “structural reforms” will fix this is, similarly, an act of faith. It is essential for policy to promote invention and innovation, so far as it can. But we must not assume an easy return to the long-lost era of dynamism. Meanwhile, the maldistribution of the gains from what growth we have is a growing challenge. These are harsh times.
These are, indeed, harsh times—as long as we stick with the existing way of organizing economic and social life. Its premise and promise are innovation, increases in productivity, and rapid economic growth. But, right now and for the foreseeable future, it simply won’t be able to deliver them.
One possibility, which the IMF recommends for Italy, is to raise the rate of economic growth by engaging in “structural reforms” and thus transferring the costs to those who can least afford to shoulder them. So, the premise of even harsher times—with the promise, however empty, that growth will someday resume.
The other possibility is to realize the existing institutions have run their course, and that alternative ways of organizing economic and social life need to be imagined and created.
That alternative economy—with a different set of presumptions and promises—is really the only way of overcoming harsh times, now and in the future.