Right now, things seem pretty gloomy for both the American economy and the world economy. Paul Krugman recently published an article about “the third depression”. He believes that the American economic engine just isn’t turning over and that the world economy has flatlined, despite all the recent Keynesian stimulus by government borrowing and spending and printing of money. Over the past few weeks, the stock market seems to agree with him. Under this view, we’re in for at least a decade of high unemployment, growing poverty and real declines in living standards.
Well, that’s not impossible. Businesses are hoarding cash and avoiding additions to the payroll account. Real estate is still depreciating in value in many places. Banks are not increasing their lending. Consumers are still quite hesitant about spending, given all the continuing unemployment and uncertainty. Oil, food and other commodity prices (like gold) are about the only thing rising; these all put a damper on prospects for growth. Production, employment, financing and consumption all seemed locked in to a lower equilibrium than what we were used to up until recently. Technology and its corresponding effects (e.g. increased productivity, new business formation) should continue to inspire growth, but this is counterbalanced by the uncontrolled costs of health care, the costs of carbon reduction needed to avoid a future global warming calamity, and the high sensitivity of oil and food prices to even the slightest increases in demand.
But when viewing the state of the economy, most of us wear the darkest, grayest sunglasses out there. » continue reading …
