Apart from the confirmation that we are not going to see economic growth in this country much above 2 percent for a long time, if ever (which we read in Piketty long ago and have maintained in our blog ever since), what interests us in this article from The New York Times is Lawrence Summers’s listing of the conditions it would take to encourage such a growth and how we will never achieve them. The original article was twice as long.
By NEIL GROSS, August 6, 2017 for The New York Times
At the end of last month, the International Monetary Fund downgraded its forecast for economic growth in the United States. Where the I.M.F. previously predicted the economy would grow at a rate of 2.3 percent in 2017 and 2.5 percent in 2018, it now expects 2.1 percent growth in both years.
The reason? An uncertain and insufficiently expansionary economic environment linked to the chaos in Washington. Yes, the stock market has been strong and unemployment is down. But Donald Trump, friend of business, may be costing us growth, a key indicator of economic health. . . .
There are several schools of economic thought on why growth has been in the doldrums — but unfortunately, few offer solutions that are viable in an atmosphere of political instability.
For example, Lawrence Summers, the Treasury secretary under Bill Clinton, has developed a theory called “secular stagnation.” The core idea is that the advanced economies of the world, including the United States, have entered a phase where there is too much saving and not enough new investment, keeping interest rates and inflation lower than they should be.
Mr. Summers points out that it costs a lot less to start a company in the internet age than when the only way to make money was through manufacturing. So there’s less investment demand.
With a nod to the New Deal economist Alvin Hansen, who wrote about the relationship between population size and interest rates, Mr. Summers notes as well that population growth in Europe and the United States has steeply declined. Without new workers and consumers coming onto the rolls, there’s an upper limit to domestic profit-making opportunities.
Mr. Summers believes there’s a way out of the low-growth trap. He argues for a major debt-financed infrastructure spending program, coupled with tax reform, policies to address rising inequality (since when income gains go almost entirely to those at the top, it’s hard to get a broad-based rise in consumer demand) and efforts to counter protectionist trade practices.
The thing is, nothing like what he proposes will be possible so long as we have a president whose inflammatory language, egregious actions and administrative incompetence continue to alienate voters and members of Congress. President Trump campaigned for infrastructure spending, but at this point neither Democrats or Republicans are likely to get completely on board. As for the other pro-growth suggestions, the president and his cabinet of billionaires couldn’t care less about inequality and seem to be gunning for a trade war with China. And it’s anyone’s guess whether Mr. Trump has the discipline to negotiate corporate tax reform. . . .
Neil Gross is a professor of sociology at Colby College