Tuesday, April 21, 2015

On "secular stagnation"

It was a sad day for the United States Senate when Phil Gramm retired. He has a Ph.D in economics, and he taught the dismal science at Texas A&M for eleven years before turning to politics. And he can write intelligently and persuasively about economics, as he demonstrates in today's Wall Street Journal. Our problems -- low growth, high if largely hidden unemployment, incomes stuck on neutral -- are the fault of government policies, he argues:

America’s historic ability to outperform Europe is well documented; we call it American exceptionalism. It has always been based on the fact that the U.S has had better, more market-driven economic policies and our economy therefore worked better. But, as the U.S. economy is Europeanized through higher taxes and greater regulatory burdens, American exceptionalism is fading away, taking economic growth with it.

The result has been a lost of nearly $12,000 a year in the income of the average American family, that being the difference between today's economy and what we should have accomplished, based on our six-year performance following all other postwar recessions.

He doesn't mention the parallel, but the last time this happened was in the 1930s. The very policies that Franklin Roosevelt followed to relieve the Great Depression had the unhappy effect of prolonging it: tax, spend, regulate, subsidize, demonize. It took the Second World War to lift America out of the "secular stagnation" that FDR created.


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