Some interesting comments from Nouriel Roubini (known as Dr Doom for some of his predictions on the economy) in this article “Dr Doom Has Some Good News” by James Fallows in the Atlantic.
I asked Roubini whether, similarly, American authorities and the U.S. public appreciated the contradictions in their own position. He answered by returning to the damage caused by boom-and-bust cycles and the need to find a different path.
“We’ve been growing through a period of time of repeated big bubbles,” he said. “We’ve had a model of ‘growth’ based on overconsumption and lack of savings. And now that model has broken down, because we borrowed too much. We’ve had a model of growth in which over the last 15 or 20 years, too much human capital went into finance rather than more-productive activities. It was a growth model where we overinvested in the most unproductive form of capital, meaning housing. And we have also been in a growth model that has been based on bubbles. The only time we are growing fast enough is when there’s a big bubble.
“The question is, can the U.S. grow in a non-bubble way?” He asked the question rhetorically, so I turned it back on him. Can it?
“I think we have to …” He paused. “You know, the potential for our future growth is going to be lower, because of the excesses we’ve had. Sustainable growth may mean investing slowly in infrastructures for the future, and rebuilding our human capital. Renewable resources. Maybe nanotechnology? We don’t know what it’s going to be. There are parts of the economy we can expect to lead to a more sustainable and less bubble-like growth. But it’s going to be a challenge to find a new growth model. It’s not going to be simple.” I took this not as pessimism but as realism.
I do agree that our notion of ‘economic growth’ has been badly skewed by years of easy credit (and before that we benefitted from years of low-competition after WWII). Where we go next is anybody’s guess.