{"id":22626,"date":"2010-11-08T09:54:54","date_gmt":"2010-11-08T16:54:54","guid":{"rendered":"http:\/\/proteinwisdom.com\/?p=22626"},"modified":"2010-11-08T09:54:54","modified_gmt":"2010-11-08T16:54:54","slug":"the-new-malaise-and-how-to-end-it","status":"publish","type":"post","link":"https:\/\/proteinwisdom.com\/?p=22626","title":{"rendered":""The New Malaise and How to End It""},"content":{"rendered":"

And no, it doesn’t involve<\/a> putting on a sweater and learning to accept that we just ain’t that special<\/em> as a country. Kevin Warsh, a member of the Board of Governors of the Federal Reserve, writing in the WSJ:<\/p>\n

After a cyclical boost early this year, the current state of the U.S. economy is unimpressive: modest growth, high levels of unemployment, stagnant wages, low levels of consumer and business sentiment, and volatile financial markets. Extrapolating from recent data, many predict only a middling recovery in the next several years. They call it “the new normal.” I call it the new malaise.<\/p>\n

The prevailing theory has it that U.S. policy makers should not deny our foregone fate. We should accept smaller improvements in output and employment and productivity. We should resign ourselves to the new normal and conduct policy accordingly. That is the last best hope, they argue, to preserve the remaining vestiges of a golden age that is no more.<\/p>\n

I reject this view. I consider this emerging ethos to be dangerous and defeatist and debunked by America’s own exceptional economic history. Our citizens are not unwitting victims of some unavoidable fate. The current period of subpar growth and high unemployment is real, but it need not persist. We should not lower our expectations. We should improve our policies.<\/p>\n

[…]<\/p>\n

Policy makers should be skeptical of the long-term benefits of temporary fixes to do the hard work of resurrecting the world’s great economic power. Since early 2008, the fiscal authorities have sought to fill the hole left by the falloff in demand through large, temporary stimulus\u2014checks in the mail to spur consumption, temporary housing rebates to raise demand, one-time cash-for-clunkers to move inventory, and temporary business tax credits to spur investment.<\/p>\n

These programs may well have boosted gross domestic product for a quarter or two, but that is scarcely a full accounting of their effects. These stimulus programs did little to put the economy on a stronger, more sustainable trajectory. Sound fiscal policy must do more than reacquaint consumers with old, bad habits.<\/p>\n

Policy makers should take notice of the critical importance of the supply side of the economy. The supply side establishes the economy’s productive capacity. Recovery after a recession demands that capital and labor be reallocated. But the reallocation of these resources to new sectors and companies has been painfully slow and unnecessarily interrupted. We are feeling the ill effects.<\/p>\n

Fiscal authorities should resist the temptation to increase government expenditures continually in order to compensate for shortfalls of private consumption and investment. A strict economic diet of fiscal austerity has greater appeal, a kind of penance owed for the excesses of the past. But root-canal economics also does not constitute optimal economic policy.<\/p>\n

The U.S. would be better off with a third way: pro-growth economic policy. The U.S. and world economies urgently need stronger growth, and the adoption of pro-growth economic policies would strengthen incentives to invest in capital and labor over the horizon, paving the way for robust job-creation and higher living standards.<\/p>\n

Pro-growth policies include reform of the tax code to make it simpler, more transparent and more conducive to long-term investment. These policies also include real regulatory reform so that firms\u2014financial and otherwise\u2014know the rules, and then succeed or fail. Regulators should be hostile to rent-seeking by the established, and hospitable to the companies whose names we do not know. Finally, the creep of trade protectionism is anathema to pro-growth policies. The U.S. should signal to the world that it is ready to resume leadership on trade. <\/strong><\/p><\/blockquote>\n

[my emphasis]<\/p>\n

<\/p>\n

Last night, resident troll AJB — presumably believing himself to be repudiating current “conservative” thinking — linked to a piece<\/a> in which former Reagan budget director David Stockman criticized the GOP call for extending the Bush tax cuts.<\/p>\n

But what AJB missed<\/a> (I know, surprise<\/em>!) was Stockman’s concomitant criticize of the Fed and their “stimulus” efforts — essentially, to follow Paul Krugman’s advice and inflate our way out of debt.<\/p>\n

Here, Warsh recommends precisely the recovery path Tea Party conservatives have themselves recommended — and that I noted in response to AJB last evening was different from the cartoonish versions of what conservatives, libertarians, and classical liberals wish to so that are being foisted on the electorate by the likes of Christiane Amanpour (who, in her defense, is probably not incorrect, were she to narrow her focus to many country club GOPers, who don’t mind the spendings all that much, and would be happy simply with tax cuts).<\/p>\n

The fact is, as I wrote last night<\/a>:<\/p>\n

keeping the taxes as they are now \u2014 which is not a tax cut <\/em>\u2014 will work in concert with spending cuts and hopefully other things, like corporate tax cuts and a roll-back of regulation that pushes jobs off shore and keeps businesses too scared to invest resources in the US [to correct the economy.]<\/p>\n

If the government needs to raise revenue, as Amanpour argues, they can do so by cutting layers and layers of bureaucracy. <\/p><\/blockquote>\n

As Warsh goes on to note:<\/p>\n

The deleveraging by our households and businesses is not a pattern to be arrested, but good prudence to be celebrated. Larger, more liquid corporate balance sheets and higher personal saving rates are the reasonable and right responses to massive government dissaving and unpredictable government policies. The steep correction in housing markets, while painful, lays the foundation for recovery, far better than the countless programs that have sought to subsidize and temporize the inevitable repricing. It is these transitions in our market economy\u2014and the adoption of pro-growth fiscal, regulatory and trade policies\u2014that lay the essential groundwork for greater, more sustainable prosperity.<\/p><\/blockquote>\n

I agree. And I also suggest that the GOP begin crafting its message on trade policy in order to beat back the new vein of neo-isolationism that is developing within the conservative movement (driven largely by Pat Buchanan and the anti-“outsourcing” crowd).<\/p>\n

We can certainly work to bring about fairness in our trade agreements; but that is a different animal entirely than making overtures about the ills of free trade.<\/p>\n

Ironically, the “outsourcing” attack was leveled by Dems in elections against people like Pat Toomey; and yet the President is spending somewhere between $1.4 and $2 billion<\/i> dollars just now on a trip to Asia and the subcontinent in which he appears to be talking up free trade with India.<\/p>\n

Puzzling, that.<\/p>\n","protected":false},"excerpt":{"rendered":"

And no, it doesn’t involve putting on a sweater and learning to accept that we just ain’t that special as a country. Kevin Warsh, a member of the Board of Governors of the Federal Reserve, writing in the WSJ: After a cyclical boost early this year, the current state of the U.S. economy is unimpressive: modest growth, high levels of unemployment, stagnant wages, low levels of consumer and business sentiment,<\/p>\n

Read More<\/a><\/div>\n","protected":false},"author":9196393,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-22626","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=\/wp\/v2\/posts\/22626","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=\/wp\/v2\/users\/9196393"}],"replies":[{"embeddable":true,"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=22626"}],"version-history":[{"count":0,"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=\/wp\/v2\/posts\/22626\/revisions"}],"wp:attachment":[{"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=22626"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=22626"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/proteinwisdom.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=22626"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}