Mainstream Economics
A Structural Reassessment
Mainstream economics is failing this country. It no longer serves the interests of most Americans and is now better described as Wall Street economics. The current approach to economic policy has acquiesced to the rich and powerful. It remains anchored in outdated monetary realities, untethered to the needs of most. Mainstream economics has failed to update its underlying framework after President Nixon took the nation off the gold standard. The nation is now governed by theories and practices that no longer match the monetary system in which it operates.
This oversight didn’t happen by chance. Much of what is called mainstream economics begins in colleges and universities, where up to 90% of all programs define economics as “the study of how society manages its scarce resources”. This framing presumes that there is never enough to go around and that sacrifices are inherent to economic life. The result has been the manufacturing of a subtle but powerful form of consent: the belief that the nation is perpetually constrained, even when evidence from our own economic history shows otherwise.
In the living memory of many Americans, the country experienced decades of broad-based prosperity. In the post-World War II years, high growth, low inflation, and reliable employment were the norm. The economic insights that guided the postwar era into prosperity, dubbed the Golden Age of Capitalism, saw a business culture that treated labor as an asset, employees as collaborators, and government as the necessary arbiter.
The Golden Age and Why It Ended
While pent-up demand for goods and services following WWII and responsible public policies led the nation to high growth, this framework was never institutionally complete. The economy lacked a functioning mechanism for stabilizing the money supply in a rapidly expanding industrial era. By the late 1960s and early 1970s, the system overheated.
What followed was “stagflation”, the rare and destabilizing combination of high inflation and high unemployment, two economic indicators that typically point in opposite direction. Partly exacerbated by poor monetary policy and partly by external shocks such as the near-quadrupling of oil prices, stagflation undermined confidence in the prevailing policy model. Although stagflation had many causes, the public became disenchanted with the direction the nation was taking and looked for new leadership.
The Reagan Administration entered on a promise of discipline and order, and the media soon labeled the new agenda “Reaganomics.” Today it is known it as neoliberalism, a worldview insisting that government is too large, taxes are too high, and social programs must be cut to “fight inflation.” This message resonated as a course correction.
After nearly five decades of neoliberal policies, it has become clear that this was more than a course correction. It was a strategy to install fear of runaway inflation and minimize government’s role in social concerns. With its promise of a balanced budget, it has instead entrenched the outdated economic philosophy of scarcity, the result of which amplified inequalities, hollowed out the middle class, and ceded economic governance to financial interests.
The Nixon Shock and the Untapped Consequences of a New Monetary System
Amid these political shifts, a monumental monetary change had occurred. With the “Nixon Shock” in 1971, the United States left the gold standard. The dollar was no longer to be backed by a precious metal but by “the full faith and credit” of the U.S. government. This transformed the nation’s currency into a fiat currency whose value was determined not by the price of gold but by the global community of currency speculators.
This shift was profound. The economy was no longer constrained by hard assets. “Balancing the books” lost its meaning in this new environment. With this act, public spending became limited not by revenue but by the nation’s ability to produce, and the frame of “scarcity” intended to mean “funding” lost much of its meaning. Within this new monetary system, revenue was not constrained by a budget but by the ability of the nation to produce more than was demanded. In the end, the constraint that mattered most was not revenue but the availability of real resources such as labor, technology, infrastructure, and entrepreneurial skills. Government revenue was now available to meet expenditures up to limits not defined by the nation’s financial statements. Mainstream economics, however, refused to adapt and continued to teach and govern as if the gold standard remained in place and, with this, neoliberalism became entrenched.
Productive Capacity as the True Constraint
Prior to the “Nixon Shock”, balancing the federal budget was considered essential to maintaining price stability. With a fiat monetary system in place, however, this logic no longer held. The real danger came not from spending more dollars than the government collected in taxes, but from spending beyond what the economy could produce.
A balanced budget did not prevent poverty during the Industrial Revolution, and it did not create shared prosperity in later decades. It kept inflation down, but it also suppressed wages, constrained growth, and diverted the gains of productivity toward investors. A balanced budget was no panacea for most.
With a fiat currency, Congress is now able to issue as much money as the economy can absorb without generating inflation. The task of policymakers must therefore be to monitor productive capacity in real time, that is, how much labor is available, how strained the supply chain is, and whether industry can expand output without bottlenecks. Those are the questions. Yet, this framework was never embraced, and the nation continued operating under an obsolete financial-constraint model.
Why a Modern Economy Needs Quarterly Economic Forecasting
If productive capacity and not revenue is the true inflationary constraint, then managing the nation’s productive capacity requires continuous monitoring. Annual budgets cannot perform this role alone, and the Federal Reserve’s (the Fed) current monetary policy approach leaves too much room for error. Neither one addresses the critical issue of capacity, directly. The Fed’s monetary policies react to symptoms of economic distress, i.e. inflation, and not to its cause.
Managing a modern economy is like docking a supertanker: adjustments must be made far in advance, and even minor changes in conditions, currents, wind, and the movement of support vessels require continuous attention. If these conditions are not addressed in real time, there is no amount of steering that will put the vessel on track again. Similarly, a large industrial economy requires constant monitoring of supply chains, consumer spending patterns, and productive capacities. Relying on an annual budget or relying on corporate policy to respond to fluctuations in the interest rate makes the task not just inefficient but nearly impossible.
A quarterly economic forecast, supported by real-time data systems and machine learning, can offer the precision necessary for a fiat-currency, capacity-constrained world. It can allow policymakers to:
anticipate supply chain disruptions,
identify bottlenecks before they erupt into inflation,
gauge labor availability and investment needs, and
maintain price stability without sacrificing employment.
Such a system would break the current destructive cycle in which policy reacts to crises only after the crises has taken hold. It would replace revenue-based budgeting with quarterly capacity-based forecasting that would allow Congress to shift from asking whether the nation can “afford” public investment to asking what public goods best serve national well-being. Quarterly forecasting forces Congress to debate national priorities, not economic accounting myths.
Depoliticizing the Budget
Developing and implementing an automated quarterly fiscal-capacity monitoring system is no small task and will not occur in a political vacuum. Any reform that promises to replace brinkmanship with evidence-based budgeting threatens entrenched interests. Government shutdowns, manufactured fiscal crises, and annual battles over “pay-fors” serve as leverage points for power brokers who have learned to weaponize uncertainty. A system capable of neutralizing these pressure points is naturally a system that some will resist.
This is precisely why modernization is so essential. The U.S. economy is dynamic, data-rich, and increasingly complex, yet our fiscal-management tools remain anchored in 20th-century practices. Fortunately, modern tools are now available. Machine learning offers advantages that traditional budget processes simply cannot match. Machine learning offers the automation of repetitive analysis, real-time data-driven decision-making, pattern recognition in supply and demand constraints, and continuous real-time improvement as new data becomes available. These capabilities enable far more accurate assessments of fiscal space than static annual budget assumptions and at dramatically lower administrative cost.
The premium benefit, however, is political: a well-designed forecasting system can guide partisan conflict out of the ditch. If Congress receives quarterly estimates of non-inflationary fiscal capacity derived from real-time data on labor markets, sector-specific bottlenecks, supply chain frictions, and productive slack, it no longer has to fight over whether proposed public spending will trigger inflation or insolvency. That debate is replaced with a more democratic one: How should we allocate already-vetted, non-inflationary funding to improve the nation’s well-being? A quarterly dividend could be made available. If it were, then legislators could return to competing over ideas rather than competing over the size of an imaginary national “household” budget.
A shift from annual budget to quarterly forecast matters for a variety of reason:
• It represents the logical remedy to the misuse of blunt monetary tools.
• It no longer ignores substantial unused productive capacity.
• It takes advantage of better tools for economic management.
• It allows the economy to respond quicker than the mechanical raising and lowering of interest rates.
• It expands productive capacity while unemployment falls, wages rise, and growth becomes more broadly shared.
In this light, the quarterly forecasting tool is more than a technical upgrade. It is an institutional redesign. It’s one that channels modern computational power toward a more democratic, stable, and prosperity-enhancing political economy. By depoliticizing the budget and anchoring public spending in real productive possibilities, the nation can finally use the full capacity it already possesses rather than fighting over an artificial scarcity that exists only in outdated economic frameworks.
Conclusion: A 21st-Century Framework
Mainstream economics has guided the nation for nearly half a century with a framework poorly suited to the monetary and social realities of the modern era. Its attachment to outdated assumptions of scarcity-driven trade-offs and balanced-budget orthodoxy, has weakened both our productive capacity and our democracy. The United States is no longer constrained by the gold standard or by the revenue limits that shaped earlier eras of economic thinking. Yet, the profession has continued to behave as if nothing fundamental has changed, privileging financial capital over human needs and accepting inequality as an unavoidable by-product of economic “efficiency.”
A more accurate understanding of our sovereign fiat currency reveals that the true limit on national prosperity is not financial but real. What matters is our capacity to produce, innovate, and employ people without surpassing inflationary thresholds. Quarterly forecasting replaces the scarcity-bound question “Can we afford it?” with the more democratic question of “What needs to be done after decades of neglect?” Recognizing this possibility opens the door to new possibilities. Education, infrastructure, and climate resilience can all be addressed while maintaining price stability. It allows us to return to an economy that serves people instead of institutional investors.
The United States has prospered before under economic models that valued labor, innovation, and broad-based prosperity. We can do so again, but doing better requires breaking from a mainstream economics that no longer understands the system it seeks to manage. It requires an approach rooted in the realities of a sovereign currency, attentive to productive capacity, and grounded in the discipline of short-term forecasting. Only then can we build an economy that delivers stability, opportunity, and shared prosperity for all.
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