Updating economic predictions

I expect to see growth of about 3% for one, maybe two more quarters. Then we’re going to see things slow down again. Unemployment isn’t going to recover, and that’s going to be a big political football for everyone. Not just for elections, either — 20% of people out of work is going to weigh down the entire nation.

The reason is fairly simple. People are letting ideology trump reality. Reality: in every case where saltwater keynesians and freshwater monetarists economic theory made different predictions, saltwater was right (or closer to right). Keynesians say we need to say ignore the deficit for now till we get the economic engine running again. Monetarists say we need to balance the budget and even start cutting the deficit now. Even if you know nothing about economics, don’t you bet on the side that’s been right? Apparently not, if you’re our government or most of the governments of the G20.

One more test/example: China. China is the only nation that is surging out of this recession. It is also the only major nation practicing keynesian principles.

It’s 1937 again, only we didn’t get our four years of recovery first.

It seems counterintuitive, but what would do us well would be to blast a large amount of money out there. For political and practical reasons it would be good to push some major projects and tie at least part of the hiring for them to recovering from unemployment. Major projects such as (not exclusively, just examples) updating the electrical grid, building effective personnel rail transport, building major non-carbon power systems (solar roofs, solar farms, wind farms, etc), building a national broadband (fiber optic plus extended wireless) network,… There are a lot of roads that need repairs, and they’re sorta getting money — but not enough to hire folk, and not enough to do it well or swiftly.

Again, I’ll use China for an example. They were building a national high-speed rail network that was to be finished in 2016-18. It has been accelerated and will be finished in another year or so. The money went to more employees (to include training where necessary) and to more supplies. Because the money is flowing, other businesses are selling goods and services. It’s not the only thing they’re doing, it’s just the most obvious example. They’re also running major fiber optic pipes in parallel to support greater broadband.

One, maybe two more quarters of low growth, followed by an indefinite period of around 2% growth — near stagnation, driven as much by population growth as any actual increase in our economic strength. That could change, but I’m not betting the farm on it.

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