If You Don’t Understand Why an Economy Grows, You Can’t Understand Why It Doesn’t Grow
The fundamental failure of economics goes beyond simply not seeing the crisis before it happened, or not warning of it, or not telling us how to prevent it. The failure is a fundamental lack of understanding of how the economy works. Economists don’t really know why an economy grows—whether it be the United States or China or Japan. Hence, they can’t tell you why it has stopped growing.
Yes, they can tell you it is growing and where it is growing, but they can’t really tell you why. They don’t understand growth, so they don’t understand the lack of growth either.
Of course, no one really cares if they don’t understand how the economy grows, as long as it’s growing. Nobody gets mad at economists because the economy is growing 10 percent per year; they get mad at economists when it stops growing—hey, man, we need you to solve this problem, and quick!
Of course, since they don’t really know why it was growing, they don’t really know how to get growth going again. When it’s growing, all a good economist has to do is agree that the economy is growing and will continue to grow, as most economists did. For that, they were richly rewarded with good academic positions, research grants, and other favors.
In fact, we have certainly spent more money on economists and economic research in the past 30 years of the bubble economy than we have for all of previous history. During the bubble economy the resources ...