Why The Economy Is At Stall Speed

The following comment from one of Tyler Cowen’s readers explains perfectly why we are in such a pickle.

The filp side of AD is unused capacity which is why it takes long to adjust, more of the same can be produced from productivity improvements alone and more investment is unnecessary. This means high profits for incumbents that are not competed away because everyone knows the encumbant can always undercut them if they had to. The combination of low inflation and productivity growth result in little to no progress in price adjustment. The entirety of growth must be borne by innovation which is small and slow, especially now. The wealth loss means debt liquidation will proceed for an extended period of time, doubly long since collateral values aren’t there to lower rates and risk premiums are greatly enhanced. Those are structural but ones that could be fixed monetarily with a sufficient money drop but probably not otherwise with conventional policy since there is little reason to borrow by anyone with the capacity to do so and little capacity to borrow by those with reason to. Game over.

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