Last night I realised that focussing this blog solely on secular stagnation was a mistake. Reading through a discussion by pre-eminent economists on whether secular stagnation is the cause of the slow recovery, or of Greek’s problems, it suddenly hit me: it doesn’t really matter.
That’s right: it doesn’t matter what causes deficient demand. What matters is that demand can be deficient.
The problem is that the secular stagnation debate introduces a false premise: that without secular stagnation our monetary system is civilised.
But the reality is that our current system allows for gratuitous suffering even when the economy isn’t afflicted by secular stagnation. The monetary economy that we’ve created since the 1930s, while an improvement on the gold standard that came before, is still barbarous.
As Marc Andreessen asked in his most recent secular stagnation “tweet storm”, has the US economy ever experienced “normal”? Since the 1930s, the US has experienced a wide variety of bubbles, busts, and runaway prices. The latest is just another in a long line of macroeconomic failures. Other countries have fared far worse.
We live in a time where we can grow hamburgers in labs and land a spacecraft on Mars, and yet our monetary system is still unable to deliver full employment and stable inflation with any acceptable degree of consistency.
Instead it allows swings in demand that cause unnecessary suffering. This suffering has implications far beyond simple economic measures such as GDP and employment. In Greece, thirty percent of businesses have closed. The incidence of diagnosed depression has risen by almost 4 times. Small business owners now live on the street. In the US, which looks stable by comparison, the number of children on food stamps has risen from 9 million in 2007 to 16 million today—and wider measures of unemployment are still stubbornly high.
We have accepted this economic malaise as though it is a law of nature. And yet every aspect of money and the systems that support it are a man-made creation.
It’s not inevitable. So why can’t we change it?
Greece should be able to commit to austerity without driving unemployment to 30%. The US housing sector should be able to shrink, and Lehman Brothers fail, without causing an eight-year slump. France should be able to loosen labour laws without fear of permanently impairing demand.
This is what neutral money is about: improving all economies, not just those suffering from secular stagnation. And while a system that requires such drastic changes is more likely to be implemented in a secular stagnation economy, it is my responsibility to shed light on all the ways our current monetary system fails us.
So I’ve decided to widen the scope of this blog. Right now academics and policymakers are focussed only on making the existing tools produce better outcomes, be it nominal GDP targeting, forward guidance, or good old fashioned deficit spending. Put another way, they are straightjacketed by our current system of money. It’s time we think outside the box. This is why I am changing the name of my blog from All Things Secular Stagnation to Money Unbound.
Not only will the blog focus on all the ways neutral money would improve the current economy, but it will also search for other ideas designed to permanently and sustainably eliminate demand-driven business cycles. While I believe that neutral money is the best solution to take our monetary system into the 21st century, I am aware that there may well be other – possibly superior ideas – out there. I will explore these as well.
Because in the end, the stakes are much larger than the intellectual sparring between my idea and your idea. It’s about improving lives. We should never forget that.