For many, the field of economics can seem unexciting and monotonous. The regular updates on GDP, employment, manufacturing, inflation, and various indexes often feel like a tedious exercise. How can such data truly inform or enhance one’s decisions in life?
Does a slight 0.2 percent increase in the Consumer Price Index justify buying more toothpaste? Should a slowdown in GDP growth deter you from your current job? Clearly, such statistics often appear irrelevant for making meaningful decisions.
Moreover, the government’s economic reports are frequently perplexing, and the statements from key policymakers can be downright confounding. Fed Chair Janet Yellen recently commented, “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient.” Such statements can indeed drain one’s motivation and enthusiasm.
So, why engage with economics when the S&P 500 is thriving and you can easily order spicy buffalo wings through an app?
The answer lies in the sheer absurdity that can be entertaining. For those with a keen sense of observation, there’s a wealth of humor in these economic discussions. Let’s dive into a recent incident, but first, some context.
Why Are Interest Rates So Low?
A few weeks ago, former Fed Chair Ben Bernanke and former Treasury Secretary Larry Summers sparked a lively debate online regarding the persistently low interest rates.
Both agree on the issue at hand: interest rates are indeed low. However, Bernanke suspects that this is due to an overabundance of savings, whereas Summers attributes it to a lack of investment opportunities. These viewpoints may sound like two sides of the same coin.
Summers’ theory, termed secular stagnation, posits that interest rates are not low enough to encourage borrowing and investment, suggesting a lack of demand persists even at historically low global interest rates.
Conversely, Bernanke argues that a global savings glut—stemming from countries with trade surpluses pouring excess savings into U.S. debt—primarily suppresses interest rates.
To address the issue, Summers advocates for increased fiscal stimulus, suggesting larger deficits and more debt in an already burdened federal framework. Bernanke, on the other hand, calls for global cooperation to mitigate policies that lead to significant trade surpluses.
The Economic Motherboard is Now Fried
The remarkable absurdity of Bernanke’s and Summers’ debate isn’t merely in their arguments but in the fact that they are having them at all. The true irony is that, despite their advanced knowledge, their constant speculation about potential government strategies results in a glaring lack of clarity.
No one seems to fully grasp why. Economists who once held prestigious government positions have, for some reason, become confounded. Bernanke, for instance, fails to address the origin of the excess dollars accumulating in exporting nations, overlooking that these funds stemmed from policies which encouraged American consumers to borrow and spend—often on imported goods.
Similarly, Summers neglects to question why people are hesitant to invest. Perhaps it’s because many recent investments have already taken place, outpacing current demand. Government policies from the past encouraged borrowing for projects that were ultimately unnecessary.
Do we really need more automobile factories? How many big-box retail stores can we sustain? Many are still paying off loans for the meal they had years ago.
Ultimately, the economic dilemmas faced by Bernanke and Summers stem from their own misguided policies. Their solutions, rather than alleviating the problems, tend to magnify them.
After decades of attempting to stimulate the economy through increased debt, we have now reached a point of total debt saturation. Efforts to introduce more debt in hopes of boosting demand have lost their efficacy in enhancing GDP.
Yet, Bernanke and Summers remain oblivious, continuing to approach economic fixes like two carpenters trying to repair a computer—with no consensus on tools, while completely unaware that the economic motherboard has irreparably failed.
Sincerely,
MN Gordon
for Economic Prism
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