A sterile term like “secular stagnation” could strike fear only into the heart of an economist. But it could be the malaise that defines the economic prospects of our generation.
Secular (here used in the sense of “persistent”, not “nonreligious”) stagnation refers to a long-term climate of low economic growth. In the conventional wisdom, booms should follow busts; recessions should be followed by a periods of high employment and inflation. America technically exited recession in 2009, but the past five years certainly haven’t felt like a boom. In fact, there’s every indication that the economy is operating far from its full potential. Until recently, unemployment has remained stubbornly high, and inflation has stayed low. This continued under-performance in the face of conventional theories about the business cycle is secular stagnation.
Since September, tens of thousands of pro-democracy protesters have taken to the streets of Hong Kong. The protesters argue that the Chinese Communist Party has broken its legal obligation to hold free elections for the city’s Chief Executive. Beijing’s election proposal would limit candidates to a select few vetted by a committee loyal to the central government, while the protestors clamor for open nominations.
Seen from the narrow confines of “Homo Economicus,” Hong Kongers’ dissatisfaction with the status quo is puzzling. On a per-capita basis, Hong Kong is one of the world’s richest economies; its residents enjoy some of the best health care outcomes in the developed world. The conservative Heritage Foundation’s 2014 Index of Economic Freedom even ranked Hong Kong first—eleven spots ahead of the United States.
Economics has long had a reputation for intellectual arrogance. But few of economics’ conceits raise the ire of its critics more than Homo economicus, the rationally self-interested actor lurking at the core of mainstream economic theory. Indeed, Homo economicus has become a favorite whipping boy for critics of the dismal science. In taking over this column from the superb stewardship of Jonathan Zhou, I thought it would be appropriate to examine its controversial namesake.
Our subject is a selfish, single-minded creature: her sole concern is the minimization of cost and the maximization of her own utility. Economists assume that she is fully informed at all times, makes no mistakes, and is able to instantaneously make complex optimization decisions.
There is this joke about Goldman Sachs. An assistant hands a Managing Director at Goldman a thick pile of resumes. The Managing Director shuffles the pile, throws half into the shredder, and says "I don't hire unlucky people."
If you received an acceptance letter from Harvard a month ago, congratulations! If you have offers from more than one school, even more congratulations! This is a privilege that the vast majority of high school graduates do not have. I have an important piece of advice for the most privileged among you—choose Harvard. It is the best school.