An unsigned editorial in today’s NYT diagnosed the economy’s problem’s thusly:
The economy’s central problem is not lack of money to hire workers or make loans or rates that are too high. It is lack of hiring and lack of lending, despite cash cushions at many corporations and big banks and rates that are already very low.
Hmmm….that’s like saying the problem with the poor is that they don’t have enough money.
I’d say the economy’s central problem is a lack of innovation (with the exception of the communication sector), combined with an increasingly oppressive regulatory structure. Both of these combine to lower the expected rate of return from domestic investments, both for big and small businesses.
To solve these problems, we have to go beyond monetary and fiscal policy, which have served their purpose of blunting the downturn. We have to develop regulatory policies that protect the vulnerable, while still leaving the room and incentives for innovation and growth. We need to use the capabilities provided by our information society to better focus the regulatory apparatus, and turn it from a hammer, which it is today, into a fine-edged scalpel.