by Mitch Kokai
Senior Political Analyst, John Locke Foundation
People simply are holding back. Indeed, the lesson since 2008 is that record-low interest rates mean little if you are apprehensive of the future or believe the system is rigged. To achieve a robust economy, therefore, attitude is everything. It is what Keynes meant when he referred to the rise and fall of the people’s “animal spirits.”
Because people are holding back, the economy is suffering from a debilitating disease. Productivity growth (doing more with less) has been abysmal because broad-scale investment in innovation is less than it should be. And there may be questions about the quality of today’s innovation. In recent years, America’s large corporations (those that haven’t escaped by moving overseas) have used the Federal Reserve’s low interest rates not to invest in America’s economic future but to buy back their stock.
Perhaps even more worrisome, innovators are starting firms at half the rate they did 15 years ago. And those businesses that are starting up are finding it difficult to expand into new opportunities as quickly as they have done in the past. Young firms are finding it tougher to go public (and the bulk of new job opportunities come when firms five years old or less go public). America was once the world’s Startup Nation. Not so anymore. And why are startups so important? They happen in America.
There are many reasons why people are holding back. They can sense that Washington, D.C., has become a partisan cesspool where nothing ever gets done. The world, both financially and geopolitically, is a terrifying place. Moreover, technological change is coming so fast that many people feel overwhelmed — or they sense that the big breakthroughs have already been achieved.
But the greatest reason people are holding back is that the economy is under the control of a stifling corporate capitalism of top-down mismanagement, backroom deals, and senseless financial engineering. Too many policymakers still cling to a culture of centralized, top-down design at a time when the world, whether with ISIS or Facebook, is experiencing a bottom-up revolution.