In his latest essay at RealClearMarkets Jeffrey Snider asks a very simple question: why hasn’t stimulus, pump-priming worked? As is the case with all of his essays I’ve read so far, it’s unexcerptable. I’m not even sure I can really recommend that you read the whole thing. Here’s a taste:
Keynes coalmine parable is incomplete. The Treasury Department can print and bury a whole lot of banknotes in the ground, have private businesses extract them from under the town refuse, and then watch as they are hoarded, too, along with money and cash already in and then out of circulation. The addition of new money is pointless unless it addresses the reason or reasons existing money has failed in the first place.
He has one answer and I have another. My answer is that the Great Recession followed the collapse of a bubble and bubbles are different. As a bubble inflates the increasing capacity is imaginary. It doesn’t really exist. When it collapses, it’s a return to reality. You can’t reinflate the bubble. There’s nothing to reinflate.
The implication of my theory is that our economy has been growing very, very slowly for a very long time. It’s not enough to revert back to 2006 or to 1999. You’ve got to go back much farther back than that (at least to 1993) and remediate the harm that all of the wrong choices that have been made over the intervening period has wrought.
1993 took out my job at the time, which was as an advertising coordinator for a newspaper. Advertising collapsed, and the entire community chain collapsed as a result.
Part of that was competitive pressure and a trend toward monopolization in the newspaper industry.
With the digital revolution, many jobs were lost that will never come back.
You could delete that first post, if you were feeling charitable.
The continuing decline in working class wages and the stagnation of middle class salaries indicates that there is a significant labor surplus. It may also indicate that the basic economy is deflationary, and that without the truly enormous stimulus we have had that prices would be falling, and that we would be in a depression.
I think the government has been rather generous to the well-to-do, since the 1980s or maybe the 1970s, partially because conservatives really think “progressive” tax rates are unfair to the wealthy, and partially because economists firmly believe that the high incomes of the upper classes will trickle down to the lower levels of society.
Unfortunately, American businessmen have spent thirty or forty years doing their damnedest to crush labor unions, to ship jobs overseas, and generally keep labor wages low.
American economists had no idea that any of this could happen. They took it for granted that trade agreements would have little impact on employment levels and that easy “adjustments” could be made if some parts of the labor force appeared to be suffering. But in fact these adjustments never came. Some of these economists (Republicans basically) embraced the new labor market as marvelous, others mumbled words of dissent to politicians they expected to share their concern. A few like Paul Krugman even got their opinions into print. But alas, the last forty years have not been good ones for Democrats, and those who actually attained much power were just as willing as Republican politicians to see workers take it in the chops.
In short, the political system assumes an economy powered by financial trickle-down. Trickle down isn’t happening, and it would take something like a revolution to make it happen.
Much of economic theory is cargo cult thinking. A financial system based upon hard money does not function the same as one based upon credit backed money, but if constrained, it can function similarly to a hard money system.
(I think this is the only article by him without at least one link to one of his previous article.)