Economic Prognostication and What Ifs

It's certainly becoming interesting to watch the intellectual right discuss whether the economy is actually recovering. The emerging consensus appears to be that some economic indicators look healthy, but that they aren't built on long-term, sustainable flows of resources. Even in an essay titled "Warranted Pessimism," Stephen Spruiell suggests that the economy may manage to lope along for a while, but:

In a must-read piece titled "The Origins of the Next Crisis," financial analyst and writer Edward Harrison explains the consequences of basing a recovery on endless rounds of monetary and fiscal stimulus. We are pursuing "low-quality growth," he writes, characterized as growth that is underpinned by debt and consumption rather than savings and capital investment. Now that businesses and especially households are maxed out, we find ourselves in a balance-sheet recession. The government has decided to deal with this by transferring the burden to the taxpayer. ...

Eventually, ... even the U.S. will discover that there is a limit to how much it can borrow and print — a point at which debt revulsion (creditors' unwillingness to lend to us at cheap rates) will make future borrowing cost-prohibitive. The conservative case against Obamanomics must start and end by emphasizing that we are closer to reaching this point than most people realize. In the meantime, any economic recovery we experience will be weaker than it would have been had Obama taken a different approach — one that required more short-term pain but offered a more stable long-term outlook.

Since the beginning of the recession, I've been arguing that, for an economy to recover, it needs somewhere to go — whether that means some new technology, some new consumer or worker market, or some new source of capital. The boom of the '00s thrived on capital from the future (i.e., debt); before that, the Internet emerged as a new technology for which consumers and businesses were willing to free up savings, take on additional debt, and put in additional labor.

Now that individuals and private entities have shied from debt, the government has picked up its own pace, gambling that something more sustainable will emerge. Ideologues are praying that it will be "green technology," but that's not really a new concept, and it's not something for which most folks are willing to pay substantial premiums.

The difficulty of prognostication is that something may indeed emerge. Only the few fortunate folks about to become billionaires can say what it is (if it is), but it may be hovering out there, about to break, and it even could be that all of this debt is enabling its continued development.

But it may not emerge, in which case the government is pushing the plane toward the cliff with the hope of kick-starting it before reaching the edge. I'd prefer a safer bet. And I'll believe in the recovery when Americans are working again, hopefully having learned their lesson, paying of debt, and preparing for the future.