The bond markets have grasped something that continues to elude many economists. We live in a confused world. Yet the underlying story is simple. The US middle continues to hollow out, even as the economy continues to grow.
But the latter’s upside is limited by the crisis in the former. Unless the middle class starts to post healthy income gains, we will be stuck in what has been annoyingly named the “new normal”.
Neither the Democratic nor the Republican party ”“ nor most of their European counterparts ”“ appears to have an answer. President Barack Obama pushes for a higher minimum wage, which would certainly help the poorest sections of the US labour force. But it would do nothing to fix the central problem. And Republicans keep arguing for lower taxes on the wealth creators. Ditto. They have argued each other to a standstill.
Both parties might find it instructive to look north to Canada, which has endured its harshest winter in 20 years.