Are We Headed for a New, New-Normal?

The New Normal. Slow growth. Persistently low inflation threatening to morph into Japanese-style deflation. Stagnant wages. Rising inequality. The American Dream converted to a nightmare. All the result of the metastasizing of the regulatory and entitlement states, say the Republicans. No, it’s the result of corporate greed, racism and a refusal of the rich to pay their fair share counter the Democrats.

Forests have been felled so economists could pen essays analyzing the causes and suggest, if not cures, then ameliorative steps to permit us to live in this New Normal world. Sociologists mused on the effect of this New Normal on family life, teenagers, drug addicts. Radicals on the right-think President Trump’s former guru, Steve Bannon, now wandering in a jobless, influence-free desert-reacted by trying to bring down the Establishment and drain the Washington “swamp.” Radicals on the left also sought to change the economic system-think the children’s crusade to elect Socialist Bernie Sanders, who says we have much to learn from Venezuela’s train-wreck of an economy-which indeed we do, although not the lessons he has in mind.

This is the New Normal with which Americans, we were told, will have to cope. Except that it isn’t and we don’t.

The economy is showing signs of having moved from a growth rate of below 2 percent to one that exceeds 3 percent. It is not yet clear that the higher growth is a new, New Normal, but economists are scrambling to revise their forecasts of persistent low growth. Fears of growth-stifling, too-low inflation are fading. Core prices, excluding volatile food and energy prices, rose in November at the fastest rate in 11 months.

With the unemployment rate at 4.1 percent and labor markets tightening, wages have begun to rise as employers compete for workers. Better still, blue-collar wages are rising faster than wages in higher-paying industries, hinting at a reduction in inequality, or at least a stemming of its increase. And workers who have been jobless for long periods, including those with criminal records, or disabilities, are finding employers willing to give them a chance.

This situation seems likely to persist for at least a while. Michael Corbat, CEO of Citigroup, told investors, “The macro environment is as positive as we have seen it in many years.” The new tax law, which invites us to party and leave the bill for our children and grandchildren-it’s called the national debt-just might keep the growth train rolling. The Federal Reserve Board, which under Ben Bernanke and Janet Yellen has done a credible job containing the Great Recession, just might continue to get it right and avoid wild inflation without aborting the growth that might be creating a new, more promising New Normal.

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All of which is why polls show that a majority of Americans still believe in the American Dream, which was believed to have been replaced by the New Normal nightmare.

If you doubt that, then consider this: The most significant voting is done by people with their feet, and America has an immigration problem because it cannot accommodate all the people who want to come here. Were America a worn-out shell of its industrial past (as President Trump contends) or a nation of bigots and racists (as his critics contend) we wouldn’t need a wall to keep out immigrants unwilling to wait for normal legal procedures.

That doesn’t mean we have no economic problems. The colossi of Silicon Valley have acquired what many worry is too much power over our daily lives and need to feel the big stick of a Teddy Roosevelt-style trust-buster. Corporate managements do not seem to know when enough is enough when it comes to their compensation. Some are insufficiently sensitive to the impact of their operations and products on the environment. The business cycle has not been outlawed.

But capitalism has been around for a long time. Government has regulated its excesses, at times coming too late to the party, at times with too heavy a hand. But monopolies have been broken up or regulated, the environment improved by a combination of regulation and social pressure. And as Trump reins in the excesses (and not only the excesses, alas) of the regulatory state bloated by his predecessor, capitalists are stepping up to reform the system by which they have done so well.

Activist investors are making it harder-although not yet impossible-for corporate managers whose view of their worth is unrelated to their companies’ performance to draw outsize compensation. And just last week, Mark Zuckerberg, the founder of Facebook, traded short-term profit for long-term societal acceptance by accepting that his company can no longer pose as a merely passive platform, with no responsibility for how it is used.

Perhaps a more important demonstration of capitalism’s ability to heal itself also came last week when Larry Fink, chairman of Black Rock, which manages $6.3 trillion of investors’ capital, sent a letter to all CEOs advising them that in his view “Society is demanding that companies . . . serve a social purpose . . . make a positive contribution to society.” When $6.3 trillion in investable funds talks, CEOs listen. And a lot harder than to the occasional nun who shows up at an annual meeting to preach reform.

When I was teaching economics I advised my students that the nation would be ill-served if it turned social responsibilities over to corporate America. But that was when government functioned reasonably well, and could be looked to as a force for effective reform. And before our best hope was that government would become paralyzed by incompetence and partisanship, giving Henry David Thoreau’s “that government is best which governs least” a meaning its author did not intend.

Times they are a changing, and if we are lucky, so is capitalism.


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