Last week was a most fascinating juxtaposition. I attended the Booth School of Business Economic Outlook, with a roundtable discussion by Rajan Raghuram, Randy Kroszner, and Austan Goolsbee. Raghuram was formerly the Governor of the Reserve Bank of India. Kroszner served on the Federal Reserve Board of Governors. And Goolsbee was senior economic advisor to Barack Obama. All three have held high level policy positions and are well respected economists. They discussed the state of the economy in this 10th year after the crash.
The very next day after the Booth roundtable, I had an opportunity to hear and meet Ross Douthat, author and religion columnist for the New York Times, whose topic was The State of Religion in America.
In 24 hours I got a concentrated view of the financial and the spiritual state of America, a pretty complete picture of this divided country. As I digested it all, I came away with the feeling that the country is in a fragile, unsettled, and morphing state.
While we have had a rather lengthy expansion since the crash of '08, the first seven years of growth were rather muted. When asked where the points of stress would come from, Rajan and Kroszner agreed that the next crisis will likely not come from the banking system, as we have done a great deal to buttress the banking system. Rajan's concerns revolve around the "shadow" banking system. Raghuram and Goolsbee are concerned about leverage and asset prices as well as the levels of debt in China. However, all agree that global growth right now is pretty good. But Kroszner is concerned that people are too sanguine.
As far as the tax cut goes, Goolsbee (Obama's guy) predictably opposed it. He argued that it will be a one time windfall and not change behavior long term. Kroszner took an opposite view-- that it will align incentives and will incentivize investment in equipment, bring money in from offshore and raise wages. I tend to fall in Kroszner's camp, and companies are already repatriating money and investing in assets and in people.
The group was divided and somewhat perplexed on the topic of Bitcoin. While Milton Friedman predicted and internet currency, the lack of the rule of law and support from central banks are limiting factors. Raghuram correctly said that if Bitcoin is to have legs, it will need the support of central banks.
Another interesting topic was inflation. I grew up in an era where taming inflation was a primary job of the Fed. "Volker taught us how to reduce inflation," Raghuram said, "but we know little about how to raise inflation." Kroszner believes that the internet is at least partially responsible for lower inflation because pricing information is easy to obtain. We used to worry about getting inflation down to 2% and now we worry about getting it up to 2% and have had to resort to exotic means like QE to get raise it.
Overall, the group does not see a looming recession. "The length of a recovery does not increase the odds of a recession," says Raghuram. Overall, the economy is doing well. The banking system has recovered (and probably overregulated). But potential dangers remain: a trade war, a credit bubble, a raft of municipal defaults are all potential triggers for a downturn.
Moving to the spiritual side, Ross Douthat put forward a more comprehensive view of religious life in America. The general view is that there is a divide between the religious right and the secular left. But Doughat sees it as a tripartite division.
1. Traditional Biblical- represented by those that submit to some religious authority. In Christianity, it is moored to the Bible.
2. The Secular Left - represented by the New York Times and elite universities that are deeply skeptical of religion and the metaphysical. They don't believe in a creator anymore.
3. The Mushy Middle- highly individualistic and at the center of our divided country. It is represented by Oprah and the "Eat Pray Love" crowd. It is the new populist center but can blur into the left or right. It's guiding principle is "to get in touch with your own authenticity," and not submitting to any authority.
Douthat claims that the structure is unstable, and that each has problems in the modern world. Traditional Biblical, for instance, oppresses gays. The Secular Left, for example, aggressively goes after Catholic hospitals. The Mushy Middle doesn't build community or permanent institutions. He sees that the trend is for the fringe of the Traditional Biblical to move toward the center but the core Traditional Biblical is holding its own.
The Secular Left doesn't make sense to him at all-- you wouldn't be able to get a Bill of Rights out of it or recognize human rights. He sees a few possible alternatives for the future. The Oprah Middle and Secular may merge and Traditional Biblical will become isolated. Alternatively, the Middle may drift back to Traditional Biblical. Finally, it is possible that there would be a leapfrog of the Secular Left into Traditional Biblical. The weaknesses of the Secular Left are stark and spiritual life remains a defining part of humanity. Still, he sees the Catholic Church as having some real challenges--we are aging, and have fewer siblings, implying that many are alone and need help and the Catholic Church is not equipped to reach them.
The two events back to back painted a picture of an America that is in flux, and somewhat unstable. Modernity, the dynamism of American capitalism and our post Great Recession economy has, on the surface, brought us back from the brink of a real catastrophe in '08. Yet, I get the feeling that the tectonic plates continue to shift under the surface.
There were two takeaway quotes from people in two different realms that were worth remembering-
Randy Kroszner, "I'm worried when people aren't worried."
and
Ross Douthat, "There is no evidence that God wants you to be happy."
Anxious quotes for anxious times.
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