Robert Shiller, Nobel Prize winning economist, shows why economic theory is useless nonsense: Understanding Today’s Stagnation. He points out that short-term interest rates have been extraordinarily low since the GFC but no recovery has occurred. This leads to his central question:
Why is all this economic life support necessary, and why for so long?
The answer to his question is that we are stuck in the doldrums not in spite of low interest rates and the stimulus but because of them, as I forecast would happen right at the start of the stimulus. If you understand how an economy works – which virtually no modern economist does – you would understand that low rates and a stimulus would only put back the return to more prosperous times. But he is a modern economist and therefore says this:
Barring exceptionally strong stimulus measures, this sense of foreboding will limit their spending.
He wants not just more public sector stimulus spending but wants the stimulus to be “exceptionally strong”! And if you think that’s bizarre, try this: Escaping the Wage Trap which begins:
Governments in the West are stuck. After a long and painful recession, economic growth remains slow, making voters grumpy and leading many to support populists of various hues. But governments’ tools to address the problem are broken. Fiscal policy has been made politically toxic by debt. Monetary policy has run out of road, and, anyway, inflation is making a comeback.
So I have a proposal that will alarm free-marketeers and surprise others: Governments should intervene directly in the labor market. I want them to raise minimum wages sharply.
What a hopeless subject economic theory has become.