The latest framing device deployed by the gate keepers of the economic left is to assert, more or less, that the economy has established a new "optimal" state in which enormous slack in aggregate demand is organic and inevitable. We see this in today's Paul Krugman column riffing on Larry Summers recent exposition to similar effect. While these two "Invisible Institutionalists" prefer to frame this condition as a natural tragedy people of good heart should set their efforts against, like helping typhoon victims in the Philippines, the essence of their position is identical to that espoused by Tyler Cowen. Cowen's "Great Stagnation" dystopian vision of the present is essentially a claim that mankind, in its vast imperfection, has simply not proven up to the task of keeping up with the "natural" progress of technology because we're mostly too dumb and lazy to benefit from it except as consumers. Thus most of us, as a matter of charity, should be tricked out with minimum domiciles, super efficient calorie delivery devices and continuously supplied with the latest home entertainment so we can FPS and wank ourselves to oblivion at minimal cost to the creative class (of which Cowen sees himself a member). As best as I can tell Summers and Krugman differ only in preferring that we all have menial jobs instead instead of Play Stations.
Invisible are the Institutions. They're outside the frame. Our samizdat mindset requires that we search there first, and just peeking into the frame we find layer after layer of politically constructed institutions with narrowly focused rewards and broadly distributed penalties. Start with the Fed: the $85 billion a month in bonds it buys. Quantitative Easing scrubs risk from the balance sheets of criminal banking organizations without doing anything more for the real economy
than keeping the P/E ratios at par despite the massive slack in aggregate demand. This is a political arrangement of institutions wherein the public's monopoly on the issue of currency is put to sole use by pathologically TBTF banks to make whole the hoards they looted in the last economic cycle even while the current cycle "stagnates". A simple institutional fix would be to re-direct the QE effort with $300 in cash going to every living American each month: it would cost the Fed the same, could be done electronically (mostly) by crediting deposit accounts rather than reserve accounts and would directly benefit the real economy with minimum subsidy for the criminogenic financial class. Then glance over to Treasury where money is squandered on a sizable bureaucracy charged primarily with withholding "benefits" of previously approved and paid for plans to help the poor from the wrong sort of poor. Institutional fix? Simply replace the entire edifice of "Welfare" with a guaranteed minimum income, low enough to be uncomfortable but high enough to pay for safe housing and healthy food.
In Tyler Krugman and Paul Cowen's world of organic stagnation and stupid people this solution produces the horror of imbecilic hoards out consuming inappropriate things: in reality, with our current institutional structure it would likely produce a modest resurgence of aggregate demand and a monsoon of predatory lending. Which brings us back to finance and its discontents. American finance, taken as an institution is an almost perfect inversion of what it purports to be. Rather than a mechanism for the rational distribution of investment Capital, the framed image in our "press release" (nee-free) press, it has been transformed into a money extraction machine bleeding both the public through multiple decriminalized frauds and the body politic through QE, a direct transfer of newly created reserve/money onto the balance sheets of TBTF banks who are run as laundering operations to convert said reserve/money into fungible cash for executives. So, since decriminalization of the gamut of frauds whereby money lent becomes an unshakable extractive hook was not enough, the lords of finance have through bald faced bribery engineered a takeover of the Fed wherein it now happily hands them $85 B in reserves for their laundering machines each month.
Interestingly, the power of the Fed, to the extent it functions in concert with Treasury, is the central and strongest foundation of US hegemony at the moment. Our world beating military is simply the most obvious expression of the purchasing power of the US government that has been central to maintaining the dominant position we achieved at the close of the Second World War. People in general, and our trading partners in particular, tend to see money as wealth but it is no such thing: it is merely a claim on wealth within the economic system that denominates its trade with the money being used. Thus Germany, Japan and China have tied their economies deeply into our own, making them dependent on our success and productivity to ever recover the value, in dollars, of the goods they have sold to us. There accumulated dollar wealth exists entirely on the balance sheet of the Fed: the Fed logs it as a liability while in their reserve accounts (at the Fed) it shows as an asset. Treasuries are no different; they can only be sold for dollars and the dollars they are sold for exist only because the Fed or the Treasury has first created them. It is this central monetary advantage the US has used to bind the world into its economic system that our bank CEOs are now toying with in insisting on their monthly QE hits. The simple institutional fix is to quit issuing debt/Treasuries to create new money, allow the government to spend new money for what it purchases and don't allow it to purchase foreign things. This would cause a collapse of purchasing power of the dollar for imports and create a manufacturing boom here instead. Cold turkey would probably be a mistake with this one, but a managed withdrawal from our global money drip could be done.
Developed ancillary to our military has been the internet and digital communications, a vector through which the US has deepened its centrality to world infrastructure, at the same time making a nice profit. Paid for by the concerted Fed and Treasury over the last seventy years, military, space and general science R&D has yielded world beating technology. This was a deliberate government policy, no magical out come of some mythical "free market". The privatization of this technology following the breakup of AT&T led to a revolution across the global economy in all aspects of communication, a revolution that American companies led. Ironically, with the decay of government support for individual rights that paralleled the ascent of corporatism, these businesses learned to use "meta data" to mine salable information from Internet and information technology users. This economic surveillance proved irresistible to military surveillers who have now irrevocably destroyed this pillar of hegemony by framing it as an issue of security when it is so obviously an issue of control. Inside the frame, our noble corporatist protectors need to know all about us to make us safe, outside the frame it is both easy and obvious the power this gives them to cajole, coerce, criminalize and incarcerate whoever they may choose. Simple application of existing law to our Secret Government would do the trick here: sunlight is already destroying the American businesses that have been drawn into these abuses, more might kill the germ of abuse that corrupts them leaving them healthy again to compete. I suspect it is too late for this.
Not only does this distortion by framing poison our commercial advantage on the Internet, it tarnishes our central branding advantage in the modern world: our association with freedom and human rights. Living in a surveillance state is hardly the beacon of freedom we still try to frame. No one believes it anymore outside the US, our rights remain our own only until they upset entrenched institutions: then you get the coordinated multi-city raid on Occupy Wall Street. Beyond privacy and security from abuse of power, even those dubious rights we trumpet here at home have been eroding since the election of Ronald Reagan. While the Democratic party has staked itself to the formal extension of universal rights to everyone regardless of anything, this effort, both laudable and noble, has been deeply compromised by the abandonment of almost all of everyones rights to a decent income and decent living conditions. The Clean Air and Clean Water acts have had their efficacy gutted by the defunding and debasing of the EPA, their enforcement agency, and our trade treaties undermine working conditions and air and water quality standards by mandating a race to the bottom. In this way the environmental costs, which are ultimately health costs born by those who can not afford to escape them, of extractive decisions that make fortunes for the fortunate debase the habitat for the balance of humanity and all other living things. Simply enforcing our environmental regulation as intended would fix this problem.
So our corporatist institutions have corrupted our money, our technology, our freedom and our environment and their agents in the "press release" can not see past the frames that make all these gross abuses necessary and appropriate. The process has been very indirect and the resulting institutions employ a great number of good and honest people, of good will and good character. But these people have been increasingly kept busy and increasingly kept distracted by a combination or economic pressure and the careful orchestration of framing devices in an increasingly oligopolistic press I've been referring to as the "press release". These institutions are the cause of the "Great Stagnation" and of the "optimal" state of slack demand we currently face: almost every industry of any significance from construction to news to clothes to food is a vertically integrated oligopoly that sets price and suppresses competition. A broad re-application of existing anti-trust law would fix this. All these problems arise from existing institutions created to prevent the concentration and exploitation of power having been captured and subverted and used for opposite ends from those for which they were designed. We need to look these institutions again and understand their centrality to social and economic outcomes. We must insist again on their fair use for the public good to restrain corporate power, to cut back to the level where it is a force for good and for real wealth creation constrained by institutions with the heft and mission to look after broad public good.