Even though there are multiple structural factors, today's economic stagnation has a strong monetary policy component (the Great Recession as beginning point) with a continuing residual effect, due to tight monetary reasoning. Central bankers never fully honored aggregate spending capacity when it was most needed, during the negative shock of rising oil prices. In all of this, the financial fallout was an effect, not a direct cause. Nevertheless, what would likely have been a garden variety recession, consequently turned into the Great Recession. What, however, are also some real economy contributions to this unfortunate circumstance?
There is a lack of understanding about the organizational capacity which contributes to direct wealth creation, as opposed to economic activity which presently "piggybacks" earlier wealth in order to take place. Consequently, there are problems for overall output in relation to debt structures. While a certain degree of secondary marketplace activity is a positive in terms of economic complexity and income levels, it is dangerous to rely on this mechanism without sufficient first market activity, for too long. First market activity might also be thought of as the kindling for a sturdy fire, along with the application of logs which burn for the longest periods.
Today's economy is reminiscent of a fire which is blazing brightly, but not enough sturdy hardwood has been contributed to make the process long lasting. Suddenly, such a fire, while appearing quite substantial at the time, could quickly die down. Indeed, the secondary market wealth of nations is vulnerable to these conditions, if and when primary market organizational patterns are not sufficient to maintain economic "warmth". What about the "filler" responses that policy makers are resorting to, for a quick blaze?
1) The mercantile response is one of the more unfortunate, given the fact Adam Smith explained how protectionism could reverse wealth creation processes, before the United States was recognized as a nation. What could explain a reversion to this antiquated reasoning? Again, think of the fire. Even though what is sought is sturdy hardwood (primary market activity) tradable sector activity that is reduced at an international level can be likened to a fire in which the damper has been shut, so the fire does not have sufficient oxygen, to burn. In particular, present day general equilibrium needs a tremendous amount of "oxygen" in order to work properly.
It has proven easier thus far, for politicians to take the short sighted and backward mercantile approach, than to initiate a serious public dialogue regarding growing automation in today's basic employment structures. Automation ultimately affects every job description, if and when a public does not work together to redefine employment on new sets of terms. And it's the response to automation which nations and their citizens need to fully address now. There is a simple way of doing so. Acknowledge the importance of time value as valuable as any other product in existence. Do so, before time value is essentially done away with in more aspects of productive organizational capacity, than is already the case. Turn time value into a local hardwood well suited for burning, so that policy makers back away from the idea of "reclaiming" hardwood from other nations.
2) A low interest rate environment as a "bonus" for government spending, response. Both private and public debt become problematic, when secondary market formation threatens to overwhelm primary market activity. This secondary market dependence can also quickly dampen what appears as though a sturdy fire, should populations find reason to doubt their nation's ability to fulfill collective fiscal obligations. The low interest rates of the present are not an economic positive. Not only does this low interest rate environment contribute to confusion regarding monetary policy theory, it lends false hope to fiscal responses and financial reform as structural means for problem solving.
Too much of the marketplace has become structured along secondary market lines, which greatly contributes to the initial investment problem, and (in this instance) the low interest rate environment. Again, planting more hardwoods (organizational capacity for knowledge use) for a sturdy fire, would contribute the needed real economy response which could eventually lead to more investment, and a higher natural rate of interest.
3) The negation of the importance of supply and demand in a changed economic environment, is also wishful thinking writ large. Whereas the wrongheaded response of mercantilism at least recognizes the reality of primary market activity for fiscal transmission, this supply and demand reasoning ("money doesn't matter"), misses the importance of supply side organizational capacity. In fact, public and private organizational capacity can both be problematic, when they take advantage of resource constructs that are not their own to rightfully assume.
Negation of the importance of supply and demand, also goes hand in hand with the wishful thinking that governments are able to tend to long term growth and output via their own means, when real market actors prove recalcitrant to do so. One reason it can be easy for progressives to bash supply and demand, is the fact too few free market advocates on the right have highlighted the lack of free market supply, for knowledge based wealth creation. And the size of the fire (an economic environment) will ultimately be limited by the good hardwoods which are planted for this purpose. Let's plant more hardwoods for the fire.