What’s it all about, Alfie?

Politicians were quick to adopt the term “Great Recession” coined by economists who refused to use the D word – depression.

Six years after the beginning of the crisis, Christine Lagarde warns that “we see continued weakness in the global economy. Countries are still dealing with the legacies of the crisis, including high debt burdens and unemployment”.

Her International Monetary Fund does not know whether it is coming or going – that is, whether growth is rising or declining. One month it’s up; the next month’s revisions reveal a downturn.

So the managing director of the IMF has coined a new term: a “new mediocre” of low growth that will persist for a long time. The IMF, it appears, is afflicted with what Paul Krugman, an American professor of economics, calls “depression denial syndrome”.

The new mediocrity

Burt Bacharach and Hal David wrote a song in 1965 that asked Alfie: “What’s it all about?” That is the refrain of the economic profession today. Economists don’t have a clue. More of them are admitting it, in the financial press.

In particular, they cannot figure out how to kick-start consumption. Unless people spend more in the shops, cash-rich corporations won’t invest in capital formation. That means jobs won’t be created and productivity will continue to decrease, rendering the trans-Atlantic economy even less competitive in global markets.

Governments, for their part, are hostage to the shibboleths of a discredited profession. They know they need to invest in infrastructure, but they don’t know where the funding would come from. They cannot unpack the reality: infrastructure is self-financing. The net income produced by highways and bridges is called economic rent. But that concept was long ago dropped into one of the universe’s black holes. Outcome: impoverished metrics that are calculated to guide the engine of growth into concrete walls.

The mediocrity that Ms Lagarde talks about is not a fair characterisation of the economy. It does correctly label the minds of economists. That’s why we continue to be locked into a depression, which is not going to go away for years to come.

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