16 THE BiG DROP
Growth today isn’t strong because the problem in the
economy is not monetary, it is structural. That’s the real dif-
ference between a recession and a depression. Recessions are
cyclical and monetary in nature. Depressions are persistent and
structural in nature. Structural problems cannot be solved with
cyclical solutions. This is why the Fed has not ended the depres-
sion. The Fed has no power to make structural changes.
What do I mean by structural changes? Shifts in fiscal and
regulatory policies. The list is long but would include things
like lower taxes, repeal of Obamacare, approval of the Keystone
Pipeline, expanded oil and gas production, fewer government
regulations and an improved business climate in areas such as
labor laws, litigation reform and the environment.
Power to make structural changes lies with the Congress
and the White House. Those two branches of government are
barely on speaking terms. Until structural changes are made
by law, the depression will continue and the Fed is powerless
to change that.
The difference between 3% growth and 1% growth may
seem small in a single year but it’s enormous over time. From
the same starting place, an economy that grows 3% per year
for 35 years will be twice as rich as one that grows 1% per year.
After 70 years, about an average lifetime, the 3% economy will
be four times as rich as the 1% economy.
These differences not only affect your wealth but also the
ability of the economy to service its debts. The 3% economy
can manage annual deficits of 2% of GDP. The 1% economy
will eventually go broke with the same deficits. The difference
between 3% growth and 1% growth is lost wealth that can
never be recovered. It is the difference between the United
States’ success and failure as a nation.
Depressions pose other grave dangers to your wealth. In
a depression, there is always the danger than disinflation —
or falling inflation — tips into outright deflation. Deflation