I take a shot at Brad's puzzle

And yet, even though politicians who fail to safeguard economic growth and high employment tend to lose the next election, leaders in Europe and the US are clamoring to enact policies that would reduce output and employment in the short run.

He s going through the Great Exogenous mantra again.

What Brad wants are local policies adjusted to local conditions. Our unemployment levels are quite low and demand quite high relative to previous trading partners. In order for locality to reign, we have to decouple, that is, import much less goods and export much less socialized banking.

Our economy is now a smaller part of global distribution. Increasing central government spending yesterday made a smaller dent in a larger domain. Increasing spending today just makes central government huge relative to a smaller, local domain. Foreigners no longer fund our entitlements, nor to they fund municipal pension bonds.

The yield curve is low relative to equilibrium, but we do not yet have visibility about how to reach equilibrium. In the smaller domain, a central government that consumes 14% of GDP seems to be equilibrium.