I’m back onto economic issues, and how can I not be? What a mess we are in. I honestly do believe we have reached the highest point in our so-called recovery. Read “From Inflation to Stagflation to Deflation,” and “Tech Bubble II,” and you will find a lot of not so tasty food for thought, including the following points: 1) “Free money” donated by the Fed that will neither get businesses to hire nor consumers to borrow and spend; 2) Inflating costs that cannot be passed along to consumers through increasing prices; 3) A further decline in the value of housing; 4) Another technology “bubble” due to the trillions in capital with nowhere else to invest, which simply adds to the never-ending stream of “more stuff than demand warrants” (overcapacity), including the thousands of new commercial websites launching every day; 5) The continuing “sclerosis” in Washington and inability to get our country’s financial house in order; and 6) The continuing debt crises in Europe.

I believe this combination of events will push us into another recession, and worse, a deflationary spiral. While I’m not basking alone in such “darkness,” most economists are somewhat less pessimistic. However, there is one whose theory (depending on how one interprets it), is darker and more permanent then mine. Globally respected Tyler Cowen, with a Ph. D in economics from Harvard University and currently the Holbert C. Harris Chair of Economics at George Mason University, has just published a new book, The Great Stagnation.

As reviewed by BusinessWeek, Cowen’s book describes how the US has gone through 300 years of economic growth simply based on “low-hanging fruit,” as he calls it: “free land, technological breakthroughs and smart kids waiting to be educated.” Now, he claims there is no more “low-hanging fruit” in the developed countries, including Europe and Japan.

However, they have developed political, social and commercial institutions based on the assumption of endless growth. Based on these dynamics, Cowen’s answer for the cause of the recent financial crisis was that “we thought we were richer than we were.”

Cowen summarily dismisses some of the more commonly held views on the cause of the crisis like free credit, mortgage manipulations, flawed ratings, and questionable financial practices across the industry. His theory points to a deeper, more fundamental problem, one that cannot be fixed by more “free money,” bailouts, tax cuts and regulations. With the “frontier” being used up, so to speak, having “educated all of the farm kids, and built a couple cars for every family,” Cowen believes we might be done growing for a while. I’d say that’s a pretty chilling assessment, yet one that if understood in a “big picture” way, is spot on, in my opinion.

So, if this economy is the “new, rather anemic normal” with no robust growth to look forward to, or worse, we get a deflationary setback, as I predict, what is a business to do? Domestically: think smaller; think quality over quantity; think more efficient productivity; think more profitability.

Globally: think expansion into the developing countries.

Have a good read!