The Rut We Can’t Get Out Of

[Scuba]

http://www.nytimes.com/2013/10/01/opinion/the-rut-we-cant-get-out-of.html?_r=0

We are in an age of global oversupply: an oversupply of global labor (hence high underemployment); an oversupply of global productive capacity (hence ultra-low inflation); and an oversupply of global capital (hence low interest rates). This explains why, around the middle of each of the past three years, activity petered out after predictions earlier in the year that the economy would finally achieve escape velocity.

The jobs created have been mainly low wage and part time. Growth in domestic manufacturing is still slow, and business spending has fallen, though corporations are flush with profits. Debt-saddled households continue to see real incomes deteriorate (even with very low inflation). Sales of new homes have suddenly reversed course. Rents are falling in several markets where home prices have recently increased. Even the seemingly unflappable stock market has been seesawing because of the uncertain economic signals.

Why do we seem unable to get out of this rut? In short, our policy makers are still fighting the last war. We are no longer faced with a world in which supply-side economic remedies — easy money, reduced taxation, fiscal belt-tightening and deregulation — can spur new capacity and the creation of well-paying private sector jobs.

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Can we get out of this mess? We can, but we need a fresh playbook. Developed nations need to put the huge surplus of underemployed workers back to work by any means, including big public sector investments to improve infrastructure and competitiveness. We need a new economic multilateralism with the developing world, to encourage them to rebalance their economics away from savings and toward consumption, while we in the West must curb our addiction to credit and consumption (and in doing so reverse the trends of income and wealth polarization).