Stagnation Is Not Just the New Normal–It’s Official Policy

Although our leadership is too polite to say it out loud, they’ve embraced stagnation as the new quasi-official policy. The reason is tragi-comically obvious: any real reform would threaten the income streams gushing into untouchably powerful self-serving elites and fiefdoms.

In our pay-to-play centralized form of governance, any reform that threatens the skims, privileges and perquisites of existing elites and fiefdoms is immediately squashed, co-opted or watered down.

So the power structure of the status quo has embraced stagnation as a comfortable (except to those on the margins) and controllable descent that avoids the unpleasantness and uncertainty of crisis. We all know that humans quickly habituate to gradual changes in circumstances, and that if the changes are gradual enough, we have difficulty even noticing the erosion.

So wages/salaries stagnate, inflation eats away at the purchasing power of our net income, junk fees, tolls and taxes notch higher by increments too modest to trigger protest, fundamental civil liberties are chipped away one small piece at a time, healthcare costs rise every year like clockwork, and the gap between the bottom 95% and the top 5% widens, as does the gap between the top .1% and the bottom 99.9%, productivity stagnates, the growth rate of new businesses stagnates, but it’s all so gradual that we no longer notice except to sigh in resignation.

Japan is a global leader in how to gracefully manage stagnation. Here’s how Japan is managing to maintain a comfortable secular stagnation:

Japan’s central bank creates a ton of new currency every year, which it uses to buy Japan’s government debt/bonds. This keeps interest rates near-zero, so the cost of government borrowing is kept minimal.

This also gives the government a ton of new cash to spend that it doesn’t have to raise from additional taxes. The government then spends this “nearly free” money (i.e. deficit spending) to keep the whole stagnating machine glued together.

To keep asset prices comfortably elevated, Japan’s central bank creates additional gobs of currency out of thin air every year to buy assets such as stocks and corporate bonds.

It helps if domestic and global investors are willing to buy bonds yielding near-zero, but if not, no problem, the central bank can just create another trillion of new currency and buy all newly issued government bonds. What’s another trillion between friends?

There are only two potential spots of bother in this comfy setup:

1. If all this new currency is no longer accepted as having much purchasing power by the rest of the world

2. Inflation arises despite the tender machinations of the central bank and government.

Here are some snapshots of secular stagnation in the U.S.: here’s productivity:

New business growth:

Fulltime employment:


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  • jadan

    Smith, your small government, free market ideology just does not fly. This stagnation is not created by government corruption of markets; it is created by privatization and the reduction of market regulation. Government regulation not only creates markets in the first place, it also helps them function more equitably. You descry financialization but fail to recognize the source of this corruption: the repeal of usury laws by free market conservatives. This enabled the securitization fraud in which debt is magically transformed into an asset. An interest rate cap would stop financialization in its tracks. You keep singing the sound money song and you believe that “money created out of thin air” is inflationary. Does Japan have an inflation problem? ( no. it is fighting deflation ).

    This stagnation is created by the increasing influence of right wing, free market, libertarian wing nuts like the Koch brother and their phony think tanks and lavish political spending. People of this elite cabal put that idiot Trump in office. Trump adopted Mike Pence because he’s poster boy for the Koch donors network.

    The cure for economic stagnation is more democratic, intelligent government regulation, not less. The billionaire class is largely responsible for the stagnation of the economy because they buy government and they buy public opinion through propaganda campaigns, and they are increasingly efficient in the extraction of wealth from the economy and the pauperization of labor. This starves the engine of economic growth because the people have less and less money to spend as their debt load becomes unbearable. Stagnation is caused by the austerity that is so close to the hearts of so-called conservative rich people, oligarchs, who run this government.