Something is strange with the economy.
Normally, in good times, the government seeks to balance its books a bit, borrowing less, paying off some debt or — gasp — maybe even aiming for a budget surplus. And right now, on some important measures, economic times are good. But the government has been increasing spending and cutting taxes — and the budget deficit is projected to grow to nearly $1 trillion, an increase of over 35% since the Tax Cuts and Jobs Act was passed in 2017. Meanwhile, the Federal Reserve would normally be raising interest rates to make sure the price of everything doesn’t get out of control. But high inflation is nowhere to be seen, and the Fed is now cutting interest rates.
We’re living in the Upside Down. You know, like that shadowy land in Stranger Things, where the laws of physics don’t apply and monsters might eat you. It’s an alternate dimension where economic textbooks are being thrown out the window. A scary place where despite big deficits and easy money, the economy is slowing down to a rate below historical averages and wage growth remains disappointing. And it’s a place where frightening monsters, or demogorgons, continue to scare away investment and productivity. Slaying these monsters is the key to growth and prosperity, but we seem to be stuck in this new world where investment and productivity will not come roaring back. Can we escape? […]