Why Do We Want a Recovery?
Board: Macro Economics
So many people (including the latest METAR Sage) advocate various schemes for producing a "recovery". Why?
All that has happened is that GDP has lost the fraction of itself that was unsustainably produced by an absurd growth of private debt to levels beyond what the economy could support. Now that that debt growth has stopped, GDP has slowed. Do we want to revive private debt growth to the levels of 2006/7 and have another almost-identical crash? Of course not. It would be much better to just resume normal economic growth from this lower level of GDP, once we got debt ratios down to a more normal level.
Wait though. The federal government has raised its rate of debt growth enormously in response to the 2008 crisis and the enormous deficits since then are holding GDP about 8% higher than it would be with a balanced government budget, even assuming zero knock-on stimulative effects of the deficits. Therefore, real or natural GDP would be 8% less than it is now if our debt incurred through our government stopped growing.
So what are we hoping for? Personally, I'm hoping for the rest of the slump to happen after we fall over the "fiscal cliff" and after the federal deficit is cured, so that we can at least reach a bottom from which we have a chance of growing. The recovery that the fed and others are trying to provoke would just be a return to insane debt growth, bankrupting the country, borrowing from the future: call it what you will. It's just insane, just like the idea of propping up insolvent, stupidly-run financial firms at taxpayers' future expense. Let them go and a lot of debt will be extinguished through default and bankruptcy.
The sooner our government understands that its deficits are anathema to our long term future prosperity the better. The sooner people realize that all this constantly- accelerating debt growth is reckless, childish, and certain to fail the better.
The sooner America understands that unlimited debt-fueled economic growth is an adolescent fantasy, the sooner we can drop our GDP to its proper level and go back to building on that.
Well, you say, that would cause a depression. Sure it would. That's obvious. That is exactly what we have created by our personal and public policies, and that is the bridge (to the future) that has to be crossed before we can achieve anything that could be called "recovery".
Desperately trying to produce real, sustainable economic-expansion-through-debt-growth from where we are now is just ridiculous. What part of history shows that that is achievable? What is the logical basis for saying it is possible? Why wait until the entire world is sucked into the unsustainable-debt-growth vortex before coming to our senses? Why wait for the mass poverty, starvation, and war that will follow a worldwide crisis before calmly assessing the actual situation?
It seems so simple to me, so plain and obvious. Is everyone so emotional that they can't think straight when faced with a lower standard of living? The contrast between the fortunes of Japan and those of Iceland since their respective crises should make things quite clear, even for someone who doesn't believe history.