Had a rousing debate on the Larry Kudlow Show tonight with a bunch of folks whom I like very much but thoroughly disagree with. At any rate, I wanted to further reflect on one aspect of the debate that I found interesting. As is often the case, no one agreed with me, but IMHO, they should have.
This part of the discussion (you can watch it here) began with some reflections on a talk Treasury Sec’y Jack Lew gave today at a CNBC investors’ conference. Lew talked about finishing the implementation of the Dodd/Frank reform bill, and this led Larry to wonder, “where’s the White House’s growth agenda?” There ensued a way overdone critique of the administration’s regulatory agenda, but pay no mind to the talking points.
My point was simply that any growth agenda must include adequate financial market oversight and that’s where Sec’y Lew was coming from.
I was once working on some high-speed rail legislation and getting some help from folks who knew how railroads work. I recall one expert pointing out the following: “I know it sounds silly,” he said, “but the thing that keeps trains from going fast is when they have to go slow.” It’s stuff like curves in the tracks, low-speed zones, going through cities, stopping a lot.
There’s an economics lesson there. Yes, economic growth obviously involves innovation, quality inputs, scale economies, and more. And a demand constrained bottom 90% doesn’t help either. But another thing that’s important for growth is avoiding not-growth.
The fact that the last few recoveries ended with burst bubbles—real estate, dot.com, real estate again—has us stuck in the shampoo economic cycle: bubble, bust, repeat. Especially in its latest iteration, that’s more than a curve in the track, it’s a derailment.
This ought to be something we can agree on. Sure, we’ll have different ideas for how to re-regulate financial markets so they don’t go off the rails. And beyond that, I know I have very different ideas on the fundamentals of economic growth than Larry et al (they’re still ardent supply-siders, even in face of evidence strongly pointing elsewhere).
But who could object to the principle that the shampoo cycle is a huge enemy of growth? That’s supposed to be a rhetorical question, but if you want the answer you should watch the segment.