Keynesians and Hayekians don’t agree on the content of economic policy, but they do agree that economic policy is terribly important.
But what if it isn’t? What if the forces determining our growth prospects are largely beyond the control of policy makers?
Jeremy Grantham, investment guru and lead author of the GMO Quarterly Newsletter, argues that external factors are indeed in the driving seat and that most of them point in the wrong direction:
So what is it that’s holding us back? Grantham identifies a range of factors, beginning with demographics:
That’s a downer, to be sure – but increases in productivity will make up for the missing man-hours, won’t they? Er, well, on that front there’s good news and bad news, with the emphasis on the bad:
It gets worse. For most of the 20th century, economic growth was sped along by cheap energy – especially oil. Grantham argues that (shale gas aside) the world is all out of the cheap stuff, with knock-on consequences for growth.
Of course, predictions of resource shortages are nothing new. They’ve been made before and they’ve been wrong. But not, it seems, this time:
If Grantham is right and the developed world has to get used to much lower levels of growth, how does one explain the relatively high levels of growth we were seeing as recently as the credit crunch in 2007? The clue, of course, is in the question.
It was borrowing that kept growth rates up in the previous decade, but when the money ran out, the truth was revealed.
Some people call this a crisis of capitalism. In fact, a permanent state of low growth is a crisis for all those who think that we can continue running the economy on debt.