Is "New Normal" bad economy permanent

In the 30s John Maynard Keynes, Brit economist, created a big following among the big government advocates.  In his attempt to explain the long recession, he suggested that people were too saving.  They needed to spend more.  Spending causes the economy to grow and all we had to do was to get governments to invigorate spending, not saving.  Gov could call for a lot of infrastructure spending, could soak the saving rich so that Gov had more to spend. And Central Banks could lower interest rates until savings made less sense and free-spending happened more.  This was music to the ears of FDR and other pols who loved the justification of their big Gov plans. And the theory ruled econ for 30 years.

            But Keynesianism wasn’t all it was cracked up to be.  Democrats argued that the economy should be kept in a constant state of stimulation with big Gov spending and low interest rates.  Yet we had just as many recessions as ever, not fewer.  And then in the 70s as Keynesianism grew popular worldwide, it resulted in a huge spasm of inflation.  What was needed, said the Monetarist school of thought, was a consistent money supply, not the erratic fluctuations brought about by booms and busts. Thatcher/Reagan proved that to grow an economy, you need to concentrate on freedoms needed by businessmen, and a stable lendable supply of money.   And so, for 30 years, Monetarism ruled.  The idea of central banking was to stabilize both the supply of money, and balance the savings (supply) and investment (demand) by lowering interest when too many people saved.

            Not all Keynesians are social liberals, but you can see the partnership. To a small biz guy like me, the Economic Freedom of Reagan made a lot more common sense.  Then in March 2000, there came a crash that led to recession in 2001.  When the economy gets stressed, all sorts of theories get promoted.  When times improve, we forget most of them. The Keynesians, out of hegemony, had to have an explanation that things were now permanently bad, Secular Stagnation.  Simply put, Secular Stagnation happens when there are too many savers and Central banks can’t lower interest rates enough to balance against the need for investment.  There is chronic economic weakness; low growth, low inflation, low interest rates and constant threat of recession.   Well maybe the population is getting old and all they want is to save, not invest (spend).  Government needs to start a massive spending plan on such things as infrastructure.  Or maybe there has come an era of income inequality when the rich have all the money and free-spending poor don’t.  Gov should start soaking the rich and redistributing the wealth.  See why this appeals to Obama? And why he had that weird way of talking about government spending as “investment”.  The most pessimistic aspect of secular stagnation is that just because times are good, doesn’t indicate economic health.  There may be booms--bubbles of financial excess from time to time--but the chronic weakness returns after a disastrous bust. 

            So, Trump gets a boom.  Will it end the calamitously as the 2007-2009 housing bust? We will soon see.  If the secular stagnation idea is correct, the Fed will soon (after a recession) be stymied with zero interest and  paltry growth (the “new normal”).  But the businessmen like me and Trump think, we can undo much of the regulations and poor policies of Obamacare and taxes.  Free the people and they will achieve. An economy consists of dozens of factors working on each business multiplied by millions of businesses.  Free the businesses and they will make growth.  So will Economic Freedom win the argument or Secular Stagnation?  It won’t be too many years and we’ll know.  My guess is that the conceit of central bankers thinking they control economies leads to stuff like secular stagnation.