The editors of the Wall Street Journal heralded: “The 2.5%
growth pace in GDP through March [2013] seems like a wild night on the town
after the 0.4% slog at the end of 2012. That's the good news. The bad news is that
the recovery is still half the pace of the normal expansion.” They said this in
the piece they published on April 27, 2013 in the Journal under the title: “The
Growth Deficit” and the subtitle: “A modest first-quarter rebound, but not
enough to lift the middle class.”
They gave an overall review of what transpired economically
in America
during the first quarter of 2013; a review that aligns itself so well with the
official statistics, no one can object to it. But the editors also expressed
opinions which they peppered throughout the piece; opinions that oblige us to
take a closer look. These opinions led them to end the editorial by pointing
the finger at what they described as Keynesian economists. This is what they
said about them: “What this economy really needs is a statute of limitations on
intellectual denial.”
While the word denial does not rhyme with the word
dishonesty, it comes close enough to it in meaning as to imply intellectual
dishonesty. This requires that the discussion be broadened so as to take into
account as much as possible of the relevant factors, because economics is a
subject so vast, everyone can see something different in it, and so describe
what they see without being motivated by dishonesty.
The readers who wish to get a sense of how vast this subject
is can go over the debate that took place and may still be ongoing between
Carmen Reinhart, Ken Rogoff, Tom Herndon, Mike Ash, Bob Pollin and Vice
Reinhart. It dealt with the relationship that may or may not exist between the
national debt and the rate of economic growth in the advanced economies. To
this end, those authors went back 200 years, compiled the statistics of 44
countries, reviewed them, analyzed them, wrote about them in the New York Times
as well as the Financial Times, and they critiqued each other.
What that debate did to me is that it made me view the
economy as something resembling the sea. It has waves in it, some of which are
high waves and some of which are low waves. Once in a while, you even see a
giant wave with nothing about it or around it to explain what caused it to be
much larger than the others. In fact, when you think about it, nothing explains
why each wave has the size that it has. The only thing you can be certain of is
that each wave is affected by all the others, and in turn each wave affects all
the others. If now, you take the size of a wave to represent the rate of growth
for a given economy in a given period of time, the only thing you can say about
such rate is that it is what it is because everything else is what it is.
Yes, you can tell that the wind, the undersea currents, the
shift in temperature and the earthquakes do affect the surface of the sea,
therefore the size of the waves. But that would be a macro view of the
situation; one that says little or nothing to describe what happens at the
micro level of each wave. Likewise, you can tell that a Keynesian injection of
funds in the economy may or may not boost the rate of growth, that a tax cut
may or may not do so, that a reduction in the interest rate may or may not do
it – and so on and so forth … but what you cannot do is tell how well that will
work and if it does, when it might work.
And since the rate of growth affects everything else in the
economy, especially the employment situation, it is surprising to see that the
editors of the Journal mentioned it only in passing to then concentrate on
politically sensitive matters that do little to shed light on the situation.
They said this: “One disappointment was the humdrum 2.1 % pace of business
spending on plant, machinery and computers. Business spending is one of the
best predictors of future hiring and wage increases, so this suggests continued
tough times for workers ahead.”
Had the editors slowed down at this point and looked at what
they just wrote instead of rushing to talk about the politically juicier
subject of “the tax increases that hit in January” and everything else that
followed, they most likely would have seen what I saw. And what I saw was that
each economy in the world is no longer a disconnected sea but that all the seas
have been opened to each other. The result has been that every economic
manifestation in each economy is now caused and affected not only by the waves
of its own sea, but the waves of all the seas.
And this explains why business spending in America is
humdrum even though “the wealthy have done well as the stock market has
recovered.” It is that the American companies are investing American money
overseas where they make the big profits that inflate the price of their
stocks. In view of all this, a realistic analysis of an economy can no longer
be made in isolation. We must look at each economy as being a province of the
larger world economy. Thus, what happens in Michigan could well be caused by what
happens half way around the world than it is by what happens in Michigan or
say, California or anywhere else in America.
And when we take this approach, we see that a healthy
economic growth does exist on this planet. It is just that it has shifted from the
advanced economies to the ones now advancing. And any analysis that ignores
this reality must be regarded as unrealistic.