Revisiting secular stagnation

Wall Street’s ‘Best of the Web’ opinion for March 2, 2017 has an interesting paragraph:

Early this afternoon, NFIB will announce that a full 32% of small-business owners in February reported at least one unfilled position, the highest reading since December of 2000. Can they find the employees they need? “Seventeen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 2 points), revisiting the high for this recovery,” writes NFIB Chief Economist William Dunkelberg in the draft release. He calls this “one of the tightest labor markets in the 43-year history of the NFIB survey.”…..

…. More broadly, this picture of small-business owners looking to hire and big-business owners expecting a brighter future is a daily repudiation of those who claim the American economy just can’t grow as fast as it used to do.

You can see the charts here at the NFIB website.

The NFIB Index of Small Business Optimism has skyrocketed since the election, a sign that small business owners anticipate major policy changes on taxes, regulations, and health care. Those are their three biggest problems, according to the quadrennial NFIB Problems and Priorities report. [Link – this is a generic link and it may keep changing every month]

It underscores the gap between Washington ‘pundits’ and the people on the ground.

This blogger too has been a votary of the ‘Secular stagnation’ hypothesis for the following reasons, broadly: demographics (aging and reduction in labour force growth), productivity (declining) and the deadweight of debt/leverage.

At the same, this blogger disagreed with the proponents of ‘secular stagnation’ that the solution lay in semi-permanent ultra-loose monetary policy or even looser (negative rates, etc.).

Solutions were bound to be difficult or even impossible. Opportunistic growth spurts could be targeted. But, trying to do too much will have side effects and worsen the problem. For example, one theory was to grow via asset bubbles. I think Paul Krugman suggested that. In other words, there was no option but to encourage asset bubbles to drive growth spurts. That would be a clear case of emphasising short-term over the long-term. Its adverse impact on future growth overwhelms its positive impact on the ‘here and now’.

This was my broad position.

Therefore, it is a bit of a surprise – and an eye-opener – to see how the small businesses are responding to the change in regime and the hope it has brought. That opens up a question: how much of the secular stagnation was due to the secular forces and how much of it was due to the cyclical forces of a misguided Presidency?

In other words, is the stock market is correct in discounting a renewed surge in growth, incredible as it may sound?

Sample this:

President Trump on Tuesday ordered the Environmental Protection Agency to reconsider an Obama Administration rule that seized control over tens of millions of acres of private land under the pretext of protecting the nation’s waterways. EPA chief Scott Pruitt will now follow due process to rescind one of his predecessor’s lawless rule-makings.

In 2015 the Obama EPA reinterpreted the Clean Water Act with a rule extending its extraterritorial claims to any creek, muddy farm field, ditch or prairie pothole located within a “significant nexus” of a navigable waterway. EPA defined significance broadly to include any land within the 100-year floodplain and 4,000 feet of land already under its jurisdiction, among other arbitrary delimitations.

Thirty-one states sued the EPA, and the Sixth Circuit Court of Appeals enjoined the rule nationwide in 2015 after finding that appellants were likely to win on the merits and that the rule-making was “facially suspect.” EPA even acknowledged that the “science available today” doesn’t support the regulation. [Link]

Read this story too:

Nancy Pelosi says Republicans have accomplished nothing in 2017, and no doubt she wishes that were true. But the House has already voted to repeal 13 Obama-era regulations, and President Trump signed his third on Tuesday.

Outside of economics, some more information on the true atmosphere of fear that the previous administration had engendered:

The press expects that Trump’s denunciation of leaks is the preliminary to a government crackdown on free speech. But so far there has been nothing like the Obama administration’s subpoena of New York Times reporter James Risen, its naming Fox News’ James Rosen as an unindicted co-conspirator and its prosecution of more leakers under the Espionage Act of 1917 than all previous administrations combined. [Link]

Some interesting sidelight: Trump referenced himself with ‘I’ 60% less than President Obama did in his first speech to the Congress in 2009 [Link].

Thinking aloud here if all of these add up to something of a sense of ‘liberation’ from a stifling, regulatory culture bordering on fear, even as the media and pathologically myopic commentators try to manufacture a sense of fear now.

Is that adding up to a new-found economic optimism and hope? That may not still justify the stock market. But, that is a different story.

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