The New Normal?

If you listen closely, you will hear “The New Normal” as the catchphrase of those economists who understand that the “old normal” can never return. This appears at first to be a useful insight, until you realize that by the new normal, these economists mean a quantitatively different normal. That is, it will be a lot like the old normal – it will just be a smaller version of it. In other words, everything will be the same – we’ll just have slower growth for a while – maybe about 2%.

But growth is a tricky thing. Indefinitely compounding growth is an impossibility, even though we have been trained to expect constant growth. We can certainly tell when an economy is doing well or doing poorly based upon our perceptions, but to tell whether or not an economy is growing, we must rely on government manipulated statistics. So it seems wise to ignore the “good economies are growing economies” mantra, if only for lack of reliable information.

If economists, however, are squabbling about whether the next decade will average 2% or 3% growth, they are probably missing the point. Economics, it seems, doesn’t allow for creative thinking. They are still operating under the assumption that the rules they created (retroactively) for the past 50 years will apply equally to the next 50 years. In this sense, we can view nearly all economists as economic uniformitarians. That all of human history disproves their position, makes such economists seem less absurd than quaint.

It seems likely that qualitatively different economics are coming to America. What form this will take is impossible to say, but the idea that completely unforeseen events will radically change our future is a certainty – as far as certainties go. It also seems certain, that economists of the future will create models which show, after the fact, how all of it was perfectly predictable.

It will be nonsense then too, but perhaps it will help them sleep better at night.