When the “Solutions” Become the Problems
Those benefiting from these destructive “solutions” may think the system can go on forever, but it cannot go on when every “solution” becomes a self-reinforcing problem that amplifies all the other systemic problems.
We are living in an interesting but by no means unique dynamic in which the solutions to problems such as slow growth and inequality have become the problems. This is a dynamic I have often discussed in various contexts. In essence, a solution that was optimized for an earlier era and situation is repeatedly applied to the present–but the present is unlike the past, and the old solution is no longer optimized to current conditions.
The old solution isn’t just a less-than-optimal solution; it actively makes the problem worse.
As a result, the old solution becomes a new problem that only exacerbates the current difficulties. The status quo strategy is not to question the efficacy of the old solution–it is to apply the old solution in heavier and heavier doses, on the theory that if only we increase the dose, it will finally resolve the problem.
Take borrowing from the future, i.e. debt, as a prime example of this dynamic.Back when credit was scarce and expensive, unleashing a tsunami of cheap, abundant credit supercharged growth by enabling millions of people who previously had limited access to credit to suddenly borrow and spend enormous sums of cash.
This tsunami of new spending supercharged growth such that servicing the debt was easy, as incomes and wealth both expanded far beyond the cost of the new debt.
Fast-forward to today, and adding 50% of the nation’s GDP in new federal debt ($9 trillion) and trillions more in corporate and houshold debt in the past 8 years has yielded subpar growth–roughly 2% a year.
…click on the above link to read the rest of the article…
