The economy has experienced a subpar recovery from the 2007-09 recession, growing only 2.2 percent annualized since then, despite massive monetary and fiscal policy stimulus.
"Most believe the central problem is chronic demand weakness resulting from a need to repair balance sheets and renew savings, which were destroyed by years of abuse and overuse," James Paulsen, chief investment strategist at Wells Capital Management, writes in a commentary provided to Newsmax Finance.
"U.S. economic policy officials have persistently employed massive and unconventional economic policies aimed at reviving perceived troublesomely weak aggregate demand."
But obviously that hasn't done the trick.
"Rather than facing an unresponsive aggregate demand, we believe the primary problem is U.S. policy officials continue to employ demand-side policies to address an economy suffering primarily from supply-side problems," Paulsen writes.
So what should we do to increase supply?
"Certainly reopening Ellis Island [to immigration] would help boost labor supply growth and raise the speed of future recoveries," he says. But given political constraints, this will take a while.
"More immediately, we are hopeful the second half of this recovery will see improved productivity performance," Paulsen maintains. "This will require faster investment spending from both the private and public sectors, adding technologies and infrastructure."
Productivity slumped an annualized 1.8 percent in the fourth quarter.
Meanwhile, former Treasury Secretary Larry Summers has suggested for more than a year that the U.S. economy might be suffering from "secular stagnation" — a prolonged period of weakness marked by a surplus of savings over investment.
But former Federal Reserve Chairman Ben Bernanke, in his blog, recently took issue with Summers' view, offering a more positive take on the economy.
Ray Dalio, head of the world's biggest hedge fund management firm, Bridgewater Associates, sides with Summers. "We [the United States, Europe and Japan] are in a period of secular stagnation," Dalio writes in a note to investors obtained by CNBC
With interest rates so close to zero, central banks have little room to ease further, he explained. The result will be less lending, less investment and thus less economic growth. The Fed has kept its federal funds rate at a record low of zero to 0.25 percent since December 2008.
"Interest rate declines and debts increasing faster than incomes to pull demand and economic activity higher are largely a thing of the past," Dalio notes.
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