Stagflation

Once again, the economic news is “unexpected” bad.  Official inflation is supposedly 3.2% annualized while real GDP is supposedly 1.3% annualized.  I suspect actual inflation is higher, which would mean that actual growth was correspondingly lower, but even if we take these figures at face value, they still do not support the Keynesian account of the crisis.

There are several explanations of recessions and depressions:

• The one most approved by government, and most apt to  get glittering prizes at ivy league universities, is Keynesianism.  If there is unemployment, aggregate lack of demand for workers, there must be insufficient aggregate demand for goods, so government should print up some money and spend it.  This analysis never fails to be a hit with politicians.
• Then there is the recalculation theory:  Lots of capitalists make big mistakes, thinking some activity is profitable (such as perhaps lending money to deadbeats to buy houses).   The balloon bursts, they discover they have been investing in the wrong stuff.  Lots of people who formerly had jobs in real estate, building houses, banking, and so forth now have to find new ways of making a living, which is hard.
• Then there is the regime uncertainty theory.  Today, the major objective of businessmen is not finding lucrative ways to apply capital to create wealth, but to get an Obamacare waiver.   They are not hiring, because they fear unpredictable punishment.
• Then there is the regulatory explosion.  To create jobs, a businessman needs to invest.  To invest, needs lots of permissions and permits, a rapidly increasing number of permissions and permits.  Cannot get them.   Savings therefore exceed investment.

In the immediate aftermath of the housing bust, the problem was probably recalculation and the regulatory explosion, but now it is regime uncertainy and the regulatory explosion.