The Engine of Economic Growth Is Running, but Hardly at High Speed

Real private fixed investment—the main driver of genuine economic growth—has recovered less than half of its loss between 2006 and 2010. As of the second quarter of this year, the amount of real private fixed (i.e., not including inventory) investment had barely recovered enough to exceed the low point it hit during the dot.com bust ten years ago. It has yet to reach the local maximum it attained before that bust. By historical standards, the current recovery of private investment is extraordinarily weak. To find anything similar, we must go back to the Great Depression of the 1930s.

Along with my colleague Mary Theroux and others at The Beacon and elsewhere, I have argued for years that this anemic investment recovery evinces, at least in part, the prevailing regime uncertainty brought about by the Fed’s and the Bush and Obama administrations’ massive, ill-advised, and counter-productive interventions in the economy during the past five years. These interventions are continuing, however, and continuing to prolong the recovery. The idea that these actions will ultimately succeed if only the authorities persist in them long enough and on a sufficiently great scale was a bad idea from the start, and its bankruptcy became fairly evident a long time ago even to many observers wedded to mainstream economics and conventional economic policy making.

Policy makers have cost the U.S. economy a decade or more of normal economic growth. How long will people in their capacities as political and financial actors continue to tolerate this foolish, destructive policy making? I do not know, but I believe I know what the result of these misguided ongoing experiments will be—economic stagnation at best, relapse or another bust at worst.