Course
Everyday Economics (15 videos)

The Great Reset

Instructor: Tyler Cowen, George Mason University

Economic progress is not continual and inevitable. It can be disrupted with short downturns and, as we’ve seen in this series, periods of stasis. If we continue on

Economic progress is not continual and inevitable. It can be disrupted with short downturns and, as we’ve seen in this series, periods of stasis. If we continue on this trajectory, there is the possibility of a “great reset” and there are some strong indicators that it’s already underway.

Let’s think of these indicators as “canaries in the coal mine.” Miners used to take canaries with them to provide an alarm when levels of toxic gases were too high. The birds were much more susceptible to the gases and would show signs of distress – or even die – before the miners were in grave danger.

During the Great Recession, subprime borrowers acted as the canaries. Poor credit and lower incomes made them the most susceptible to trouble in the larger financial system, and they showed signs of distress first – missed payments and foreclosures. The whole system was cracking up, but we saw it here first.

Where are the possible canaries today? The Ferguson and Baltimore riots suggest stress on America’s race relations and inner cities. Millions of men of prime working age are missing from the U.S. labor force. And what about the 2016 election? Trump’s political rise indicated serious discontent among millions of American voters, but elite political commentators, up until the very end, did not see Donald Trump becoming president.

If we look at these events as connecting the dots between stresses on the American economy, we can see some commonalities – namely, a loss of trust. People are losing trust in American institutions. Wage growth is sluggish, people are experiencing more socioeconomic segregation, and politics have us increasingly divided.

What happens if the U.S. faces a crisis? Can we respond to huge job loss from unforeseen automation? What about a foreign policy crisis, or infrastructure collapse? The American economy, with its current loss of dynamism and innovation, would have trouble responding to any sudden crisis. The federal government, with so much revenue already tied-up, would as well.

If we stay on the course of complacency, a great reset is very possible and it won’t be pleasant. But it’s not all doom and gloom. In the longer run, such a crisis could reinvigorate the American pioneer spirit, putting the U.S. back on a path of economic dynamism and growth.

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