One thing I’ve found remarkable during the current economic crisis is that so much of our difficulties are driven by purely nominal problems – ie, not enough money – and not by real problems – not enough wealth, not enough capacity, not enough productivity, insufficiently adequate institutions – and yet so many mainstream pundits and politicians desperate to ameliorate the former problems are looking to the latter for answers. And as we are all coming to learn, not only is that trying to solve the wrong problem, the Sumner Critique pretty convincingly says that until we solve the right problem nothing else matters. And yet it persists. What gives?

I have a pet theory – and what else is a pseudonymous blog for if not pet theories? I think, simply put, it is just very very hard for a lot of people to believe that a) there is unnecessary suffering in the world; b) that such real and awful problems could be caused by something wholly reified, like the supply of fiat money; and c) that a) and b) combine into a vicious cycle that convinces most people that whatever they judge wrong in the United States must be the real cause of all our woes. And so you have much wailing, gnashing, rending, etc about the deficit and debt, productivity, innovation, density, welfare statism, zombie banks, too high taxes, insufficient investment, inadequate infrastructure, partisan polarization, energy scarcity,and uncertainty when really if Ben Bernake came out tomorrow and announced "OK motherfrackers we’re doing this NGDP targeting thing starting @now, and we’re revving it straight up to 8% until we’re back on trend so, hey, is that rapidly increasing MV in your pants or are you just happy to see me?" then everything would be pretty much fine.

Now, not that all those aren’t problems – in fact, most of those are problems of varying degrees of seriousness, many of which we very sorely need to address (especially IMHO nos. 3, 4, 6, 8, and 10). But in an even greater irony not only will addressing those not solve the problem of insufficient NGDP, but until we solve the problem of insufficient NGDP growth we can’t even know which of those are the biggest problems to solve. As I wrote yesterday, energy scarcity may be a fairly hard cap on short-to-medium term global growth, thus rendering NGDP targeting moot. But maybe not. Who knows? We don’t, because we don’t have enough NGDP. How much of the national debt is structural and how much is cyclical? Who knows, because we’re operating way below capacity. Is Ryan Avent’s theory of insufficient density a drag on productivity, or is it really Tyler Cowen’s theory of insufficient innovation driven by excessive growth in health care and education? Nobody knows, because we’re not hitting the top of our productive capacity as it is! So until we get our monetary house in order and we start seeing what happens to a properly functioning American economy we’re all just going on muscle memory and intuition. As Keynes might say, we are worried about the quality of the tires, the drag of the spoiler, a broken side-view mirror and a rusty timing belt when we need to be fixing the magneto.

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