At Bloomberg Noah Smith outlines two competing theories of economic stagnation, secular stagnation:
One model that gives this result comes from a 2014 paper by economists Gauti Eggertsson and Neil Mehrotra. The source of the negative demand shock comes from people’s attempt to deleverage after a big increase in private debt. That simultaneous deleveraging pushes down interest rates until they hit zero and can go no further. With interest rates unable to go below zero, economic activity slows down, meaning people can never pay off their debts. But they keep trying, and their continued attempts to do so keep the economy in its atrophied state.
and technological stagnation:
Technological stagnation is a different beast. According to Gordon and others, humanity has simply picked most of the low-hanging fruit of science and technology. Airplanes and cars travel no faster today than they did 50 years ago. Electricity, air conditioning and household appliances have made our homes about as pleasant as they’re likely to get, and so on. That doesn’t mean advances stop, but it means that each one is less game-changing than the last.
I have basic problems with technological stagnation as an explanation for what’s happening now. As a start most of the “low-hanging fruit” was picked 70 years ago. We haven’t seen much in the way of major breakthroughs but we’ve seen an enormous amount of elaboration. I see no reason that elaboration can’t continue indefinitely.
Even more basic is that I think it reflects a fundamental misunderstanding of value.
I think there’s an even more likely candidate explanation for what’s happening now: deadweight loss. There comes a point at which all of the growth in the economy is being absorbed by inefficiency. Our societies are very different from those of the 1930s. Grover Norquist’s macabre fantasy of drowning the federal government in a bathtub was much more practical then.
It’s also possible that all three are true in varying degrees.
How would you go about disproving that we’re in a period of secular stagnation, that technological stagnation has set in, or that deadweight loss is just too high? If a theory cannot be disproven, it is not science. It is metaphysics.
I can see why it might be difficult or even impossible to prove whether any of those was the case but is it possible to disprove that one or more are a factor? For example, doesn’t Japan’s experience disprove the secular stagnation theory, at least in the case of Japan? There has been no lack of stimulus there.
Dave you seem to like the term “deadweight loss”. I can tell you that where I work, what was left of that was eradicated at least six years ago. Even the annual take out Christmas dinner. Gone. Retirement celbrations, gone. No profit, they say. Maybe true maybe not, don’t know.
BUT, when It comes to the Federal Regulatory Agencies that my bosses fear, tons of deadweight loss. We are in the dairy industry, we are subject to:
Food and drug administration
O S H A
Department of transportation
D O T physical and drug tests
State of Ne. food safety inspectors
Homeland Security mandated backround checks on drivers
Weights and measures
We keep logs on:
Driving time
sleeping time
refer unit tempurature four times daily
Daily milage. number of stops
Fuel purchaces and usage
Truck box washouts, (cleaning)
Mind you, the Govt. doesn’t help us do any of this they just mandate it and track it all accross the industry.
We don’t want to kill anybody, the lawsuits and publicity would kill us off. But the Govt. feels we can’t be trusted, or, as I beleive, a Govt. worker is a Democrat voter, and must multiply at any cost.
Deliberately.
That’s exactly what I’m talking about. There are more than 81,000 pages of federal regulations. That’s not the laws. Just the regulations. At least double that in state and local regulations.
So then, are you still afraid to go anti-establishment? Hire Trump to tell all of these useless agencies, YOU’RE FIRED.
You Know the Clintons will expand it. I beleive Trump is verbally a very loose cannon, but I also believe him when he says he would hand off the day to day activities with congress to Mike Pence.
But most importantly, I really believe that there is NO ONE ELSE with the fearlessness to take on the washington cabal, and please,please.please. THROW THEM OUT.
As Trump says You’re “FIRED”.
I apologize but I must repeat myself. Because of his unique posision and personality there is No One Else in our lifetimes to stop the slide.
I think demographics needs to be added to the list. I would also add fed policy. Apportioning the causes is of course impossible, but I suspect those cited capture a good 80-90%.
Of course I have a friend who knows where to put 100% of the blame: Republicans standing in the way of the good work Obama wants to do. So that’s a problem (snicker).
O K, but I think I was talking about the proliferation of useless govt. agencies That spawn democratic voters with healthcare without cost, retirement plans completely foreign to the rest of us, and by the way, totally guaranteed, FOR LIFE!
AND as for Barrack Obama, he has never considered himself as the president of the United States, He is far too big for that singular job.
Accordig to his mom, Vallerie Jarret, he has been bored by this job since he was elected, his I Q being off the charts.
And , O. K. I reiterate, Trumps an arrogant bastard. BUT, In YOUR lifetime, you will never have a chance like this to bring down the Socialist Cabal, Media included. They will rule for a thousand years before you find someone else with Trumps unique ability to care less what the establishment thinks of him, doesn’t need their money, understands why people with normal live and families fear and distrust Gay Marriage, gender fluidity, (gender nuetrality?)
Open borders that threaten their families to help people who demonstrate open violence against women?
Freinds, think about it, He’s not dangerous, She is.
… If a theory cannot be disproven, it is not science. It is metaphysics.
That is where epistemology enters, and this is where the problems become apparent.
In a monetary system where currency is backed by credit created through a fractional reserve lending system, the hard money economic theories cannot apply because the simple laws of arithmetic do not apply. The sole purpose of this system is to transform $1 into $9 through the magic of an accounting ledger, but the entire system is technically bankrupt at all times.
There are no amount of Nobel Prizes, college degrees, newspaper columns, political appointments, or anything else that will change that simple statement. Like it or not, it is a fact. The only way for the financial institutions to remain solvent is by increasing the credit supply as any Ponzi scheme must.
In this system, the highest return for an investment of money will be in a credit manufacturing establishment. Occasionally, goods and services can have higher returns, but this is a short term phenomenon. As the credit supply increases, more and more money will try to be invested in the financial industry, and it will grow accordingly.
All that the financial system requires to maintain stability is that the credit supply not decrease. Some of the credit is extended to users as debt. (NOTE: Debt is not credit. Credit is an asset and can be sold. Debt cannot. You have a debt card.) Debt and credit are not interchangeable, but there are similarities.
Individual debt is not important in itself. It is only important in aggregate. As long as bad debt is replaced by good debt, the system can function, but a more financialized economy will place a heavier burden upon the performance of that debt. There are ancillary goods and services associated with the primary debt increase, and these suffer the same fate as the original debt.
All of this is to say that things do not work the way that it seems they should. In a financialized system, one plus one does not equal two. First, one does not equal one. In order to add one plus one, you would need to know the actual number that the first one was at that exact time, and then, you would need to know the same for the second one. But, the answer will not necessarily be the simple addition of those two numbers. The same forces apply to the answer.
Few economists have a clue about the forces they are trying to understand. They are using hard money concepts mixed with semi-hard money financial outcomes and one of the only (or the only) the economic theory that requires credit backed money, but to them it is all one. (semi-hard = well regulated fiat) Into the mix, many bring desired political and social outcomes.
This is more a comment for the previous post, but never fear. As a deplorable, I would never pass up the chance to forcibly press the dark ink to increase the value of a white pristine sheet of paper. It is just another case of the white privilege. (Did I mention that 8-ball pool was racist?)
The simple problem is that the lending institutions were insolvent, and many probably still are. (Of course, this depends upon how one is valued, i.e. 1=1: insolvent, 1=9: solvent.) China is beyond insolvent. They are using imaginary numbers. (Here is a little science for the science based crowd: alternating current uses imaginary numbers. FYI: It really always bugged me. I understand what is going on, but there is something not right. I have coded some ugly hacks that were praised because they fixed a problem, but I prefer my elegant code that slices off a few clock cycles or tightens up my code.)
Where was I? China is an unknown in terms of its present condition or its eventual outcome. This also has some impact on everybody else. Europe is in bad shape. (Deutsche Bank) Japan is in bad shape, but their system is probably stable. Unfortunately, they have been in this bad but stable condition for 20 years, and unless the world has major impacts, their present policies ensure it will continue indefinitely.
I have not kept up on the financial industry, and I only have a general knowledge of what is happening. The US is better than Europe but on a path to Japan. How many and how deep the financial institutions and the industry is into insolvency, I do not know, but I do know that compared to Europe, they are Girl and Boy Scouts.
In a financialized economy, the economy is expanded through credit creation. Credit creation can be used as a raw material to manufacture more credit, or it can be extended as debt. The manufactured credit gets counted as an actual good or service, but the entire operation does not need to leave the financial industry. In addition, it requires wealth, and therefore, the rich get richer.
The financial industry interacts with the non-financial industry through debt extension. This has several impacts. It can increase the worker’s income and, therefore, ability to purchase. It can also be an incentive for existing producers to increase output, but in a financialized economy, there are more incentives to reduce costs than increase output. The best use for money is in the manufacturing of money (credit). Manufacturing any other goods or services is costly due to the materials, personnel, overhead, etc.
In a semi-hard (or well regulated fiat) money, this is not as much or as soon a problem. The money (or credit) supply is allowed to grow through well regulated institutions, and while technically bankrupt, these institutions are (were) mostly solvent through the backing of the government. The money created was credit backed, but the credit was somewhat backed (FDIC) and limited (banking regulations) by the government.
Creating credit was not as profitable as printing money. Creating a printing press or a service to maintain the printing press would be far more profitable, but it would be riskier.
None of this is taken into account, and so, the Nobel Prize winning, etc. economists are continually baffled. No amount of consumer spending is an incentive to produce any goods or services in the US that can be produced elsewhere. This has nothing to do with Adam Smith, David Ricardo, free-trade, or even Lord Keynes. It is simply a function of complex arithmetic.
With a gold standard, fractional reserve lending allowed only as banknotes or checks (not legal tender), and unfettered free-trade, US manufacturing would explode. Lending actual gold to borrowers of questionable creditworthiness would return to a sane level – closer to zero. Sending actual gold to China to invest in manufacturing facilities would return to a sane level – closer to zero.
(I am not advocating this. There would still be problems, but it would expose the lie. The additional deadweight losses would be harder to dismiss.)
In the existing system, the reason that the rich get richer is because they keep selling the same hat to each other at a higher price. Each sale is recorded as increasing the GDP, and they increase their wealth. Occasionally, a hat gets sold to an outsider, or they will lend it to a consumer for a night out. Economists have modeled this “economy”, and then, they are surprised at the outcome.
Japan isn’t in as bad a shape as you might think. Their financial sector isn’t nearly as large as our relative to the size of the Japanese economy, their GDP continues to increase (slowly), and their population is actually decreasing. GDP per capita continues to rise as are Japanese standards of living.
I have only seen what has been written, and those numbers are not really telling the correct story. They have been pumping QE’s into their financial system for about 20 years, and it has not worked. Their next scheme is negative interest rates. Their banks have an insolvency problem, and the central bank is trying to use debt to fix the problem.
Jeffrey P. Snider, David Stockman, and Mish (in that order) are my usual go-to guys, but it is reinforced elsewhere. I have not really looked into it.