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The five risk factors for depression – Sarah Berry.

Dr Joanna Dipnall comes from a region in Victoria, Australia where adolescent suicide rates are alarmingly high.

With a background in statistics and epidemiological research, Dipnall wanted to see if she could do something to “help circumvent these tragedies”.

“I felt I could try and make a difference,” says Dipnall, a lecturer in the Department of Statistics, Data Science and Epidemiology at Swinburne University.

Risk indexes are used for cardiovascular disease, diabetes, dementia and even suicide risk for those with bipolar. They help to identify predisposed people so that healthcare professionals can help those individuals take preventative measures.

There is not currently a reliable index for depression, so for her PhD Dipnall developed The Risk Index for Depression (RID), published in the Australian and New Zealand Journal of Psychiatry.

She analysed the data of more than 5500 adults, looking at the association between depression and five previously identified components of depression; demographics, lifestyle, diet, biomarkers and somatic symptoms.

While each of the components heighten the risk of depression either directly or indirectly, “diet came out initially with the highest association”, says Dipnall, whose PhD was a collaboration through Deakin and Swinburne universities.

Specifically, regular consumption of fruit, leafy greens, other vegetables, cooked whole grain and whole grain bread were associated with a reduced risk for depression, while a diet high in processed foods and sugar was associated with a higher risk.

“Previous research I did found bowel symptoms came out as one of the strongest risk factors for depression,” Dipnall says. “Your stool can be an indication and that’s obviously impacted by your diet… [Deakin’s] Food and Mood centre are looking at the issues of dietary fibre and gut health – it all fits in.”

In fact, the recent research of Dipnall’s PhD supervisor, Felice Jacka, of Deakin’s Food and Mood Centre, has been pivotal in exposing the centrality of the link between depression and diet.

“We’re increasingly understanding that the gut and its resident microbiome has a leading role in prompting immune function and is very much involved in brain health,” Jacka told Fairfax.

“We have extensive evidence from animal studies, showing when you manipulate diet, you manipulate the function of the hippocampus, which is a key area of the brain involved in learning and memory, but also in mood regulation.”

After diet, lifestyle factors (things like work status, physical activity, sleep, smoking, sexual activity and drug usage) had the greatest impact, followed by somatic symptoms (things like pain, bowel health, vision, hearing, arthritis as well as respiratory, liver and thyroid function).

Dipnall notes the five components that make up the RID model are a starting point and “on their own are not enough to provide a holistic prediction of depression”. This is because data was not available for other significant risk factors like stressful or traumatic life events.

“The nature of the index is that it is modular, so you can add elements,” she says, adding that she hopes to build on the model in future.

In the meantime, she wants people to understand that depression is not simple. Some of the factors that cause depression are not within our control, but there are some changes we can make to improve our outcomes.

Taking care of diet and exercise, reducing stress and getting good quality sleep are also modifiable factors that can help people to stay well as they are recovering from mental illness.

“It is a multitude of factors and [people] can’t just look in isolation in their lifestyle,” she says.

“This is confirming that there are more elements people need to take into consideration – it’s not just diet, it’s their lifestyle environ and how they deal with their somatic symptoms… My research was looking at what impacts depression with a view to looking at the areas people can modify to reduce that risk.”

Stuff.co.nz

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Your mental health involves your whole body and starts with diet.

Before September 2005, Scott Gooding was a competitive athlete who could run 10 kilometres in under 33 minutes (i.e. really fast).

Then he ruptured disks in his lower back and, after a lifetime of sport and being known to friends and family as “the fit guy”, exercise was off the cards.

“It got so bad that I couldn’t do one push-up or one squat,” says Gooding, now 41. “I was in constant pain and discomfort.”

Apart from the physical pain and the mental struggle with his new identity – “fitness was so much a part of who I was” – he had lost his outlet.

“I couldn’t tap into the therapeutic and meditative effects of running and exercising,” says the former My Kitchen Rules star, personal trainer and health coach. “I dipped in and out of pretty dark periods for the best part of seven years.”

During that time, Gooding began exploring nutrition and how it might help reduce some of the inflamation in his body.

“I think the diet really helped with my back condition and slowly I started to reintroduce exercise,” says Gooding. Moving again helped him shift out of “feeling pretty blue and shit about myself”.

While many individuals intuitively understand the link between how we fuel and move our bodies and how we feel, the medical community is in the midst of a paradigm shift.

“This mind/body dichotomy that has informed psychiatry for at least the last 50 years or so, we know that is erroneous and is not based on evidence because we are increasingly understanding that the whole body is involved in mental health,” says Professor Felice Jacka, head of the Food and Mood Centre at Deakin University.

“Psychiatry is really starting to understand that we need to get back to treating the whole person, not just bits of their brain.”

Jacka, who is also a Black Dog Institute external fellow, is referring to the mounting evidence that our immune system plays a central role in depression and other mental health problems.

“We’re increasingly understanding that the gut and its resident microbiome has a leading role in prompting immune function and is very much involved in brain health,” she says.

“We have extensive evidence from animal studies, showing when you manipulate diet, you manipulate the function of the hippocampus, which is a key area of the brain involved in learning and memory, but also in mood regulation.”

The hippocampus is a “central target” in antidepressant treatment, but Jacka says the impact on its functioning (as well as the immune system and gut health) through diet and exercise helps to explain their pivotal role in influencing mental health.

In fact, she says, in adults and older adults, the size of the hippocampus is linked to the quality of diet.

“Diet and nutrition are as relevant to brain and mental health as they are to physical health. This should be no surprise because nutrition is fundamental to every process of the body and brain,” says Jacka, whose latest study found that improving the diets of those with major depressive disorder had a “substantial beneficial impact” on their mood.

Despite this, Jacka stresses she is not suggesting that diet, or lack of exercise, is the only reason someone might be depressed – or that diet and exercise are the only solutions to depression.

“Depression – and any other mental illness – has many causes and many drivers, but the key thing with diet and exercise is that they’re modifiable,” Jacka says. “So many other risk factors that lead to depression, such as early life trauma, genetics, poverty, disadvantage; these things are very difficult to change.

“If we know that we can change diet and exercise and very quickly, according to the evidence, have an impact on mental health, we believe that this should be a fundamental starting point for treating mental health problems and it can go along with psychotherapy and antidepressant treatments but it should be underpinning all of these treatments.”

This recommendation has been adopted in the updated clinical recommendations for the treatment of mood disorders by the Royal Australian and New Zealand College of Psychiatrists and is significant given that depression is one of the most common reasons people visit their doctor.

“They are now recommending that the first thing that happens when a doctor has a patient with a mood disorder, is to address diet, exercise, smoking cessation and sleep,” Jacka says.

Which is great, except that doctors do not receive any nutritional education during their degrees.

“I attended and spoke at a big conference of psychiatrists on the weekend – psychiatrists and psychologists are still quite astonished to learn that nutrition might be important to mental and brain health,” Jacka says. “They will always say to me: ‘It’s because we never learnt anything about it in our medical degrees.’ ”

Until nutrition training is introduced to medical degrees, Jacka suggests that a quick and easy option is to include dietitian referral services in the Better Access initiative as part of mental health care.

Through the Food and Mood Centre, Jacka and her team are also in the process of developing a nutrition resource that people can use at home.

While Jacka thought getting people to change their diet “would be very difficult” because of the fatigue and reduced tendency to self-care associated with depression, she found the opposite.

“People really, really like this approach because it’s something that’s under their control,” she says. “It doesn’t have to be complicated – you can do a big pot of veggie and legume stew in the crockpot which you can get for $20 from the op-shop – and you can have that for the whole week. You can use frozen vegetables, you can used tinned fish … this idea that it has to be more expensive is not true, the idea that it has to be complicated or time-consuming is not true either.”

Scott Gooding says that he has come to see his “really negative” experience as a positive because it has transformed the way he understands fitness and nutrition and their impact – both physically and mentally.

“The way I see fitness now is simply a tool to improve my mood and make me feel good about myself,” says Gooding, who is also a Blackdog Exercise Your Mood ambassador.

“I also realised you can have this sustained energy and cognitive alertness all day if you’re eating the right food. At no point now is my mood, energy or cognitive function impaired by what I’ve eaten.”

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Getting RID of the blues: Formulating a Risk Index for Depression (RID) using structural equation modeling.

Abstract

OBJECTIVE:

While risk factors for depression are increasingly known, there is no widely utilised depression risk index. Our objective was to develop a method for a flexible, modular, Risk Index for Depression using structural equation models of key determinants identified from previous published research that blended machine-learning with traditional statistical techniques.

METHODS:
Demographic, clinical and laboratory variables from the National Health and Nutrition Examination Study (2009-2010, N = 5546) were utilised. Data were split 50:50 into training:validation datasets. Generalised structural equation models, using logistic regression, were developed with a binary outcome depression measure (Patient Health Questionnaire-9 score ⩾ 10) and previously identified determinants of depression: demographics, lifestyle-environs, diet, biomarkers and somatic symptoms. Indicative goodness-of-fit statistics and Areas Under the Receiver Operator Characteristic Curves were calculated and probit regression checked model consistency.

RESULTS:
The generalised structural equation model was built from a systematic process. Relative importance of the depression determinants were diet (odds ratio: 4.09; 95% confidence interval: [2.01, 8.35]), lifestyle-environs (odds ratio: 2.15; 95% CI: [1.57, 2.94]), somatic symptoms (odds ratio: 2.10; 95% CI: [1.58, 2.80]), demographics (odds ratio:1.46; 95% CI: [0.72, 2.95]) and biomarkers (odds ratio:1.39; 95% CI: [1.00, 1.93]). The relationships between demographics and lifestyle-environs and depression indicated a potential indirect path via somatic symptoms and biomarkers. The path from diet was direct to depression. The Areas under the Receiver Operator Characteristic Curves were good (logistic:training = 0.850, validation = 0.813; probit:training = 0.849, validation = 0.809).

CONCLUSION:

The novel Risk Index for Depression modular methodology developed has the flexibility to add/remove direct/indirect risk determinants paths to depression using a structural equation model on datasets that take account of a wide range of known risks. Risk Index for Depression shows promise for future clinical use by providing indications of main determinant(s) associated with a patient’s predisposition to depression and has the ability to be translated for the development of risk indices for other affective disorders.

Stealing From Our Children. The real dilemma of growth and the need for New Economics – Kamal K. Kothari & Chitra Chandrasekhar. 

“In a very rapidly changing scenario, with a burgeoning population, fast-changing demographic profile, and growth aspirations of people around the world putting pressure on natural resources, our economic thoughts and practices have to change.”

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RE-THINKING ECONOMICS

In the beginning there was nothing, no human beings, no animals, no trees, no oceans, no earth, no sun, no stars, not even space or time. A quantum fluctuation leading to the Big Bang almost 14 billion years ago sowed the seeds of the Universe and space and time, as we know it. In the initial phase, stars, black holes, and galaxies were formed. The Earth, our home planet, was born almost 10 billion years later, about 4 billion years ago. It was then a fiery ball and took almost 1 billion years to cool down. Seeds of life sprouted about 3 billion years ago, some say spontaneously, while others hold a view through panspermia, no one knows for sure.

While the earth was cooling, life forms were evolving and the planet was undergoing cataclysmic changes. Continents were shifting and breaking apart, ocean floors were rising and sinking, volcanoes were erupting. Forests, animals, fishes, amphibians came and disappeared, so much so that according to some, 99.9% of the species in existence since beginning of life on Earth have ceased to exist. These changes, over a period of hundreds of millions of years, left us the legacy of natural resources—coal, crude oil, natural gas— and minerals so necessary for industrial processes and evolution of a technological civilisation.

Life forms continued to evolve. Humans came on the scene. No one is sure, but it is said that human sub-species evolved about half a million years ago in the African Savannah. With human civilisations, human aspiration too continued to develop and grow, perhaps slowly, if we were to compare it with the developments in the last 100 years.

The advent of the Industrial Revolution, which started in Europe around 1760, brought in its wake a transformation. Progress brought about by technology encouraged a shift from primarily an agricultural world to an industrial one. Rapid shifts took place in many parts of the world, mainly Europe and North America, and in the earlier part of the last century, in Japan. Such shifts are now taking place in parts of Asia, mainly India and China, Latin America, and Africa. These changes, by themselves great achievements for mankind, have led to a burgeoning population and major demographic changes. An off-shoot of this technological progress has been that more intensive and concentrated methods of food production are required for supporting technological societies and longer human life spans, stemming from better healthcare. 

About the time of the birth of Jesus Christ, the planet supported a population of about 200 million human beings, which, by the early 19th century i.e. in a period of about 1,830 years touched a billion people. In another 185 years, we have expanded 7-fold to over 7.2 billion people and we are still continuing to expand. The advent of technological changes and exploitation of natural resources has improved the living conditions of human beings, and on an average a human being lives better, is better fed, and better educated than any other time in the history of mankind.

All this has been brought about by scientific advances in different fields such as Quantum Physics, Relativity, Material Sciences, Chemistry, Agricultural Sciences, and so on and so forth.

The list is endless.

However, a large population and better living standards have created their own challenges in fields as diverse as economics, social sciences, ecology, and environment. At the heart of these is the rapid exploitation of natural resources, be it in the form of energy-generating resources like coal or crude oil, mineral resources like ores, or environmental resources, which are being degraded in the pursuit of economic growth.

These issues are well known, and have been discussed in various fora for decades now. The first Club of Rome report, Limits to Growth, which was published in 1972, raises many issues pertinent to these changes. That landmark report and subsequent Club of Rome reports, which generated extensive debates in the 1970s, now lie peacefully buried in the archives of libraries around the world. While these issues are still relevant, it is not the intent of this book to reiterate them. 

Along with technological progress, economic theories evolved as well. A key aspect of economic theories was better and more efficient utilisation of resources, be it capital, land or labour. These concepts and theories optimized utilisation of resources and went a long way in improving the living standards of mankind across the world.

These economic theories, which have served us well for many decades now, need a relook, particularly from the point of view of sustainability. If we lived in a world where resources were infinite or virtually limitless in relation to our consumption, we would have had no issues. But that is indeed not the case, more so, as our population and resource consumption have been expanding exponentially. Using current methods of economic analysis, capital allocation really promotes gross long-term inefficiencies in our resource utilisation. If we continue with these approaches, our societies would become unsustainable.

The authors have long held the view that not only do our economic theories lead to unsustainable development, but really amount to stealing from our future generations. We compare our society to a rich man who sells his family silver to sustain his lifestyle and in the end leaves practically nothing for his children. What is worse in our case is that we would leave our children a huge debt, which they would have to pay. This book will provide enough evidence that our economic and capital allocation models do the same thing: promote current consumption at the cost of future generations. The problem is further compounded by the short-sightedness of the political class in most nations of the world where the focus seems to be the next year, the next election, or in non-democratic societies, growth in personal wealth or stature. Similarly, the corporate world around us generally thinks of the next quarter, the next shareholders’ meet, and the bonuses, which the top managers can persuade the Boards and shareholders to pay them. Few think of the long-term strategies for the company, and fewer still about long-term sustainability issues.

Most businesses use capital allocation models to optimise their working. Similar concepts are, at least theoretically, used by countries (where their leaders are not driven by political considerations, which is not often) to utilise national resources. Few realise the pitfalls of such models.  So wide is the use of these models that working of all banks would come to a standstill if somehow these formulae were to be erased from their computers.

Capital allocation models are generally skewed in favour of current consumption. They place a premium on current consumption and earlier use of the resources vis-à-vis saving them for the future generations. For example, if we can pump a barrel of oil now and its price is US$100, our benefit (less the pumping out cost, which we for the sake of simplicity assume to be zero) is US$100. But if we leave the same barrel of oil underground so that someone else can use it 50 years later at a 10% cost of capital, the value of the same barrel of oil today is 85 cents. If we were more farsighted and do not use it for 100 years, the present value falls to 0.7 cents. So our incentive is in using the resource as fast as possible. Of course, in doing this analysis we conveniently forget that nature took several hundred million years to generate the same barrel of oil.

Another way of looking at the same situation is, if, for the sake of argument, through some technological breakthrough it is possible to extract 100 barrels of oil after 50 years, but if the field were to be exploited now, only 1 barrel could be extracted and the remaining 99 barrels are lost forever. Managers would still find it desirable to extract that one barrel of oil now, notwithstanding the fact that future generations would lose 99 barrels of oil. This example may sound extreme, but analogous decisions are routinely taken globally. As a result, the rate of consumption of natural resources is so high that the world reserves of many key resources would be exhausted in a couple of generations. As these resources get exhausted, their availability would decline, although this fall would be generally gradual. But a fall in resource availability would impact industrial production as well as all the consequences that would inevitably result from it.

Everybody would be impacted. No one would be spared. But youngsters in their twenties and thirties, with 30 to 40 years of working life remaining, would be most affected. Their hopes, aspiration and dreams of a comfortable and peaceful retirement after years and years of hard work would stand shattered as money, not backed by availability of goods and services, would lose value as its purchasing power falls.

The aim of this book is to bring out the deep lacunae in our economic thought and practices. The existing economic practices were developed when natural resources were plentiful, the global population small, and natural resource consumption minuscule in relation to the reserves. But in a very rapidly changing scenario, with a burgeoning population, fast-changing demographic profile, and growth aspirations of people around the world putting pressure on natural resources, our economic thoughts and practices have to change.

No change is without associated pain. We are all comfortable with the present thought processes, which predict steady and sustained growth based on the implicit assumption that resources are unlimited. But the reality is that we live in a finite world with limited resources, and after that reality is factored in, none of these projections hold true. And the sooner we realise this, the better it is and perhaps less painful too.

This book is divided into two sections. The first section, The Context, highlights the world we live in and how fast we are consuming our resources and impacting the environment. Some readers may find The Context grim and depressing, but we have painted the picture as we see it based on the best available information. We would request such readers bear with us or simply move on to the next part, The New Economic Paradigm, and then come back to The Context. In the second part, The New Economic Paradigm, we have suggested a new approach to our economic theories, which would lead to a more sustainable world.

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“Humans are extremely intelligent and yet extremely foolish. They have failed to perceive the inter-linkages in the Web of Life; remove a few links and the Web could collapse, threatening their own existence.”

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Stealing From Our Children. The real dilemma of growth and the need for New Economics – Kamal K. Kothari and Chitra Chandrasekhar. 

get it from Amazon.com


First home buyers need LVRs to stay – Liam Dann. 

Real estate agents are wasting their breath calling for a removal of Loan to Value Ratio restrictions. They will not be removed prior to the election, nor should they be.

Though the housing market has cooled there is a risk that it will bounce back post-election as spring takes hold. That would be a disaster for first home buyers.

We know that population pressure is still far stronger than the rate of new building.

Those looking to get in to the housing market need prices to stay flat – or ideally fall further over the next 12 months – long enough for housing supply to reach the kind of peaks that could prevent another bubble.

If that happens then LVRs will inevitably be loosened and first home buyers will be in far better shape than they would have been without them.

The LVRs have been highly successful in cooling the housing market, but even the Reserve Bank would acknowledge that they have been just one of several factors. It’s possible they are getting too much credit.

The retail banks have also tightened their lending based on concerns that the market was in bubble territory.

Nevertheless LVRs stand out as a piece of policy that is doing what it is supposed to do.

Specifically LVRS were designed to target New Zealand’s dangerously high levels of housing debt and remove the wider risk to the economy.

The growth in mortgage lending has slowed but not by enough yet to say that the job is done.

It seems highly unlikely that Reserve Bank Governor Graeme Wheeler or his immediate replacement Grant Spencer will be swayed by lobbying.

Spencer is currently head of financial stability for the Reserve Bank so was instrumental in putting the LVRs in place.

Real Estate agents are unhappy because the market is seeing a huge slump in the volume of sales – that effects their livelihood.

Their industry concern is understandable

But the slump in the past few months is largely to do with the toughening of restrictions on investors – the big change to LVR rules last year.

REINZ’s claim that LVRs are hitting first home buyers is disputed by Kiwibank chief economist Zoe Wallis.

“While REINZ notes that LVR restrictions have been particularly hard on first home buyers, the data suggests that the recent changes to property investor lending LVR restrictions have instead opened up some opportunities for first home buyers and other owner-occupiers,” she wrote last week.

“The latest round of LVR changes has meant that the percentage of bank mortgage lending to investors has fallen from 33 per cent of all loans in July last year, down to 24 per cent.

“Over the same time period the share of lending to first home buyers has increased from 11 per cent to 14 per cent.

“Lending to other owner occupiers (i.e. people moving up the property ladder) has also increased,” she concludes.

Many first home buyers won’t need a 20 per cent deposit either. LVR rules allow banks to offer 10 per cent of their loans to owner-occupier buyers who have less than 20 per cent deposit.

So basically if you have a decent job and in excess of 10 per cent on a good solid property then there is a good chance you can find a bank that will lend to you.

And even if that takes more time, LVRs are helping your cause.

You are less likely to need a $200,000 deposit if we stick to our guns now.

Prices are falling, so the pressure to get in the market quickly has gone. Would be home owners can keep saving without feeling like they are being left behind.

There will of course be some, ready to buy now, who feel hard done by.

But it seems that the most aggrieved parties right now are would be investors and the real estate agents themselves.

Giving up on LVRs now would be akin to quitting a tough fitness regime after you’ve done most of the hard work but before you reached your goal.

It would be a wasted opportunity.

NZ Herald

How to Use Fiscal and Monetary Policy to Make Us Rich Again – Tom Streithorst. 

The easiest way to return to Golden Age tranquility and equality is to empower fiscal policy.

During the post war Golden Age, from 1950 to 1973, US median real wages more than doubled. Today, they are lower than they were when Jimmy Carter was president. If you want an explanation why Americans are pessimistic about their future, that is as good a reason as any. In a recent article, Noah Smith examines the various causes of the slide in labor’s share of national income and finds most explanations wanting. With a blind spot common amongst economists he doesn’t even investigate the most obvious: politics.

Take a look at this chart. From the end of World War II, productivity rose steadily. Until the 1972 recession wages went up alongside it. Both dipped, both recovered and then, right around the time Ronald Reagan became President, productivity continued its upward trajectory but wages stopped following. If wages had continued to track productivity increases, the average American would earn twice as much as he does today and America would undoubtedly be a calmer and happier nation.

Collectively we are richer than we were 40 years ago, as we should be, considering the incredible advances in technology since them, but today the benefits of productivity increases no longer go to workers but rather to owners of stocks, bonds, and real estate. Wages don’t go up, but asset prices do. Rising productivity, that is to say the ability to make more goods and services with fewer inputs of labor and capital should make us all more prosperous. That it hasn’t can only be a distributional issue.

The timing suggests Ronald Reagan had something to do stagnating wages. That makes sense. Reagan cut taxes on the rich, deregulated the economy, eviscerated the labor unions and created the neoliberal order that still rules today. But perhaps an even more significant change is the tiny, technical and tedious shift from fiscal to monetary policy.

Government has two ways of affecting the economy: monetary and fiscal policy. The first involves the setting of interest rates, the other government tax and spending policy. Both fiscal and monetary policy work by putting money in people’s pockets so they will spend and thereby stimulate the economy but fiscal focuses on workers while monetary mostly benefits the already rich. Since Ronald Reagan, even under Democratic presidents, monetary has been the policy of choice. No wonder wages stopped going up but real estate, stock and bond prices have gone through the roof. During the Golden Age we shared the benefits of technological progress through wages gains. Since Reagan, we have allocated them through asset price inflation.

Fiscal policy, by increasing government spending, creates jobs and so raises wages even in the private sector. Monetary policy works mostly through the wealth effect. Lower interest rates almost automatically raise the value of stocks, bonds, and other real assets. Fiscal policy makes workers richer, monetary policy makes rich people richer. This, I suspect, explains better than anything else why monetary policy, even extreme monetary policy remains more respectable than even conventional monetary policy.

During the Golden Age, fiscal was king. Wages rose steadily and everybody was richer than their parents. Recessions were short and shallow. Economic policy makers’ primary task was insuring full unemployment. Anytime unemployment rose over a certain level, a government spending boost or tax cut would get the economy going again. And since firms were confident the government would never allow a steep downturn, they were ready and willing to invest in new technology and increased productive capacity. The economy grew faster (and more equitably) than it ever has before or since.

During the 1960s, Keynesian economists thought they could “fine tune” the economy, using Philips curve trade offs between inflation and unemployment. Stagflation in the 1970s shattered that optimism. Inflation went up but so did unemployment. New Classical economists decided in the long run, Keynesian stimulus couldn’t increase GDP, it could only accelerate inflation. Keynesianism stopped being cool. According to Robert Lucas, graduate students, would “snicker” whenever Keynesian concepts were mentioned.

In policy circles, Keynesians were replaced by monetarists, acolytes of Milton “Inflation is always and everywhere a monetary phenomenon” Friedman. Volcker in America and Thatcher in Britain decided the only way to stomp out inflationary expectations was to cut the money supply. This, despite their best efforts, they were unable to do. Controlling the money supply proved almost impossible but monetarism gave Volcker and Thatcher the cover to manufacture the deepest recession since the Great Depression.

By raising interest rates until the economy screamed Volcker and Thatcher crushed investment and allowed unemployment to rise to levels unthinkable just a few years before. Businessmen, union leaders, and politicians pleaded for a rate cut but the central bankers were implacable. Ending inflationary expectations was worth the cost, they insisted. Volcker and Thatcher succeed in crushing inflation, not by cutting the money supply, but rather with an old fashioned Phillips curve trade off. Workers who fear for their jobs don’t ask for cost of living increases. Inflation was history.

The Federal Funds Rate hit 20% in 1980. Now even after a few hikes, it is barely over 1%. The story of the past 30 years is of the most stimulative monetary policy in history. Anytime the economy stumbled, interest rate cuts were the automatic response. Other than military Keynesianism and tax cuts, fiscal policy was relegated to the ash heap of history. Reagan of course combined tax cuts with increased military spending but traditional peacetime infrastructure stimulus was tainted by the 1970s stagflation and for policymakers remained beyond the pale.

Fiscal stimulus came back, momentarily, at the peak of the financial crisis. China’s investment binge combined with Obama’s stimulus package probably stopped the Great Recession from being as catastrophic as the Great Depression but by 2010, fiscal stimulus was replaced by its opposite, austerity. According to elementary macroeconomics, when the private sector is cutting back its spending, as it was still doing in the wake of the financial crisis, government should increase its spending to take up the slack. But Obama in America, Cameron in Britain and Merkel in the EU insisted that government cut spending, even as the private sector continued to retrench.

It is rather shocking, for anyone who has taken Econ 101 that in 2010, when the global economy had barely recovered from the worst recession since the Great Depression, politicians and pundits were calling for lower deficits, higher taxes and less government spending even as monetary policy was maxed out. Rates were already close to zero so central banks had no more room to cut.

So, instead of going to the tool box and taking out their tried and tested fiscal kit, which would have created jobs and had the added benefit of improving infrastructure, policymakers instead invented Quantitative Easing, which in essence is monetary policy on steroids. Central Banks promised to buy bonds from the private sector, increasing their price, thereby shoveling money towards bond owners. The idea was that by buying safe assets they would push the private sector to buy riskier assets and by increasing bank reserves they would stimulate lending but the consequence of all the Quantitative Easings is that all of the benefits of growth since the financial crisis have gone to the top 5% and most of that to the top 0.1%.

A feature or a bug? The men who rule the planet are happy that most of us think economics is boring, that we would much rather read about R Kelly’s sexual predilections than about the difference between fiscal and monetary policy but were we to remember that spending money on infrastructure or health care or education would create jobs, raise wages, and create demand which the economy craves, we would have a much more equitable world.

One cogent objection to stimulative fiscal policy is that it has the potential to be inflationary. Indeed the fundamental goal of macroeconomic policy is to match the economy’s demand to its ability to supply. If fiscal policy gets out of hand (as arguably it did in the 1960s when Lyndon Johnson tried to fund both his Great Society and the Vietnam war without raising taxes), demand could outstrip supply, creating inflation. But should that happen, we have the monetary tools to cure any inflationary pressure. Rates today are still barely above zero. Should inflation threaten, central banks can raise interest rates and nip it in the bud.

Fiscal and monetary policy both have a place in policymakers’ toolkits. Perhaps the ideal combination would be to use fiscal to stimulate the economy and monetary to cool it down. Both Brexit and Trump should have told elites that unless they share the benefits of growth, a populist onslaught could threaten all our prosperity. The easiest way to return to Golden Age tranquility and equality is to empower fiscal policy to invest in our future and create jobs today.

2017 August 6

Evonomics.com