Federal Reserve Chairman Ben Bernanke doesn’t speak in the Yoda-like riddles of his predecessor, the bubble-blowing Ayn Rand disciple saxophonist Alan Greenspan. Today at the New York Economic Club, Bernanke tried to come to grips with the very slow recovery and wounded labor market.
In his speech, Bernanke said, “A critical question, then, is why significant slack in the job market remains three years after the recovery began. A likely explanation…is that the economy has been faced with a variety of headwinds that have hindered what otherwise might have been a stronger cyclical rebound.” Among them: The housing meltdown, eurozone crisis and U.S. fiscal gridlock. Recovering from a financial collapse takes much longer than from a Fed-induced recession or dot-com bust.
It’s interesting that Bernanke uses the term “headwinds.” This is the same word used by Northwestern University economist Robert Gordon in a bombshell paper he wrote this year predicting prolonged slow growth in the United States — and there’s little the Fed or monetary policy can do about it.
To risk oversimplifying a nuanced thesis, he argues that we’re out of leaps that were so transformative in creating revolutionary growth in the 19th and 20th centuries. These included steam power and railroads; indoor plumbing, electricity, communications, entertainment, chemicals, petroleum and the internal combustion engine, and finally computers, the web, and mobile phones.
“A common feature of this innovative revolution was that many of the improvements could only happen once,” Gordon writes. Thus, “The U.S. was transformed from 75 percent rural to 80 percent urban, and that could not happen again.”
Dramatic new shifts that create new wealth, industries and jobs face “headwinds.” They are inequality, globalization, the overhang of consumer and government debt, lower education levels, the retirement of educated, productive baby boomers, environmental degradation and energy costs.
Our leaders in D.C. should be discussing ways to address these headwinds rather than breezily trying to preserve low tax rates for the uber-rich.
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Today’s Econ Haiku:
H-P says “Woopsie!”
Seems Autonomy wasn’t
Investors say “sell!”