“Economists joke that the questions on their doctoral exams haven’t changed in 50 years, but the answers have.” (“The Curse of The Big Bad Rut,” by Peter Coy, Bloomberg Businessweek, May 16-22, 2016 pg. 14.) The same lack of imagination could be laid at the feet of politicians who believe the economy works on a cycle of good times and bad. A few economists, like Larry Summers, former president of Harvard, insist we haven’t been in a cyclical pattern for some time. Instead, we are locked in a period of “secular stagnation,” which means no growth. And nothing, he insists, is going to change any time soon. (Ibid pg. 13.)
Ironically, our problem lies with us, the American consumer. For years, we have been criticized for not saving enough. Now, it seems, we are saving too much, which makes sense as we are an aging population. But when demand for goods and services slows, our economy slumps. People without jobs look to the government for assistance, while those who have money fear to spend it. Assets pool in the banks to earn secure interest at a time when banks don’t need the money. No one is borrowing. The situation can become so extreme, that in order to force people to spend more, rather than park their money, banks resort to “negative interests rates.” That means customers are charged for depositing their money into savings accounts. Put in $10 and get back $9.95 when you take it out, for example. (Click)
Japan and parts of eastern Europe are already imposing negative interest rates on their customers. So what are people to do with their surplus cash, if they are lucky enough to have any? There aren’t many good options. If too many people flee to the stock market or speculate in real estate, they create a bubble. And we know what happens to bubbles. On the other hand, if stagnation persists for too long, countries devalue their currencies, hoping to make their exports cheaper and bring in foreign cash. Summers calls it a plan for impoverishing your neighbors. But when that happens, neighbors stop trading, making beggars of us all. Over time, the world economy falls into a depression.
Alan Binder, an economists at Princeton, doesn’t buy Summer’s theory. “When I go to sleep at night worrying about the economy, I never worry that Americans won’t spend enough,” he counters. (Ibid pg. 14) But current trends seem to be proving Summers is right. Americans aren’t spending enough, at least not in retail. And if that’s true, what should our presidential candidates be talking about besides giving the public freebies? Summers thinks we should repair our dilapidated infrastructure: our roads, our bridges and our energy grid. Doing so would create jobs and funnel money into the economy.
I’m no expert, but as a former public official, I can support funding the infrastructure. Some bridges in our community are so frail, they’d pose a danger to a cat if it wanted to cross. Summer’s solution would be good for the economy, good for the country and good for workers. Forget about class warfare. A common goal and cooperation are the best ways to lift all boats.