With the model presented in the previous post, Attractor States in the Business cycle, we could conceivably project the path of the next business cycle. How could we do this? The model shows that productive capacity regularly rose by 18%. The last rise was 17%. So I will assume a 17% rise in attractor productive capacity of the next business cycle.
The projected path of the next business cycle is the top line. In the next business cycle we would have a real GDP of $19 trillion at the current 74% utilization rate of labor and capital.
So let’s assume for a moment that this projection is quite possible… no matter what kind of fiscal or monetary policy we throw at the economy.
Now ask yourself, what kind of economy do you want to see on that path? Do you want to see an economy with high inequality? Do you want to see a cleaner economy? Do you want to see an investment driven economy? Do you want to see an economy devoted to advancing human capital? Do you want to see an economy with less working hours?
The point is this… the economy will want to go to that path. We could already see where we are headed. Now free your mind from only worrying about this business cycle. There will have to be a recession to get to the next path. We eventually welcome a recession. Why? Because it is a natural process that allows the economy to jump from one attractor state to a greater attractor state.
From my understanding, the point at which a recession would need to occur is determined by effective demand. We have some control over that.
So… What do you want the economy to look like when we get there? Do you want low interest rates that try to feed the wealth effect with higher asset prices? Do you want higher labor share so that labor has more political and economic power? Do you want lower or higher taxes on the wealthy?
We need to be more focused on what kind of economy we want… not trying to force feed an economy that we think is dying. The economy is not dying. It is just sluggish because labor share has fallen. In the moment that labor share starts to rise, we will see life return to the economy. We will eventually see a recession, but that is part of the process of expanding the economy to a greater level.