Is U.S. in Great Reset?

We normally assume that most recessions end in due time, and that the U.S. economy returns to its old trend even after an extended slump. George Mason University economist and blogger Tyler Cowen, writing in the New York Times’ Upshot blog, worries that this time is different:

“It is hard to avoid the feeling that our current economic problems are more than just a cyclical downturn. … The radical and sudden changes of the financial crisis [may have been] early indicators of deep fragility and dysfunctionality. … We may be watching the slow unfolding of a hand that, in its fundamentals, has already been dealt.”

I have a few problems with this idea.

First, Cowen posits that some sort of deep, underlying shift has permanently lowered our economic potential. But has it lowered the level of gross domestic product, or its trend growth rate? This isn’t made clear.

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Are we talking about a permanent scar that the U.S. can live with, or economic apocalypse?

My second problem is the question of why we might be experiencing a Great Reset, a term coined by University of Toronto economist Richard Florida. There are many theories for why the Great Recession might have left a scar.

Workers, spending a long time unemployed, may have lost their skills and work ethic. Or there might have been a permanent reduction in productivity, or a permanent worsening of government policy.

But most of these are problems at least somewhat correctible by policy. But Cowen hypothesizes that this Great Reset might be something that policy can’t address.

The problem is, you can only test a hypothesis if it’s properly specified. To know whether we’ve experienced a Great Reset, we’ve got to define exactly what the theory of a Great Reset predicts, and also articulate a mechanism.

My third problem with the Great Reset theory is that there aren’t many historical examples of countries permanently shifting to slower growth.

The Great Reset hypothesis really just amounts to a worry that something big has shifted under our feet, and that things will be bad in years to come.

Empires decline, golden ages do end.

But that shouldn’t discourage us from trying policy fixes. If creeping doom is inevitable, then so be it, but there’s no reason not to try our best to avert it. •

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