December 3, 2013 § Leave a comment
If the government is in surplus, it means that the government is taking in more cash than it’s spending, which is the opposite of stimulus.
It’s also well known that the US trade deficit exploded during the late 90s, which means that ‘X-M’ was also a huge drag on GDP during his years.
So the trade deficit was subtracting from GDP, and the government was sucking up more money from the private sector than it was pushing out.
There was only one “sector” of the economy left to compensate: Private consumption. And private consumption compensated for the drags from government and trade in two ways.
First, the household savings rate collapsed during the Clinton years.
And even more ominously, household debt began to surge.
So already you can see how the crisis started to germinate under Clinton.
As his trade and budget policies became a drag on the economy, households spent and went into debt like never before.
Economist Stephanie Kelton expounded further…
“Now, you might ask, “What’s the matter with a negative private sector balance?”. We had that during the Clinton boom, and we had low inflation, decent growth and very low unemployment. The Goldilocks economy, as it was known. The great moderation. Again, few economists saw what was happening with any degree of clarity. My colleagues at the Levy Institute were not fooled. Wynne Godley wrote brilliant stuff during this period. While the CBO was predicting surpluses “as far as the eye can see” (15+ years in their forecasts), Wynne said it would never happen. He knew it couldn’t because the government could only run surpluses for 15+ years if the domestic private sector ran deficits for 15+ years. The CBO had it all wrong, and they had it wrong because they did not understand the implications of their forecast for the rest of the economy. The private sector cannot survive in negative territory. It cannot go on, year after year, spending more than its income. It is not like the US government…” read more
PHOTOGRAPH: Achille Volpe
The cessation was glibly attributed to the Great Fire: but in every other city in England the Plague ceased at about the same time
November 21, 2013 § Leave a comment
While virtually all mainstream economists believe in a long-term Say’s Law (supply creates demand, so the ultimate constraint on long term growth comes from the supply side), the real constraint on long-term growth in a developed capitalist economy is always on the demand side. (Note that there’s nothing new in the Summers/Krugman recognition of secular stagnation; David Levy called it a “contained depression” in 1991; Wallace Peterson announced a “silent depression” in 1994; and I demonstrated in 1999 that the problem is chronically constrained demand. At a recent Levy Institute conference in Rio, Paul McCulley laid out what he called a fundamental economic principle: Microeconomics and Macroeconomics are inherently different disciplines. Macro is demand-side; micro is supply-side. For any practical time horizon, demand always drives supply.)
I know what I’m saying is heretical, even though it is fully backed by all the data. And this stagnation is not due to a liquidity trap, or to a negative “natural” rate of interest. It is in the nature of the productivity of capitalist investment in plant and equipment. To put it in simple terms, the problem is that investment is just too damned productive. read more
PHOTOGRAPH: Antonio Olmos
October 9, 2012 § Leave a comment
Our cultural belief is that harmony is good and dissonance, bad. Those forms of music that have abandoned connection to what most people regard as “harmony” can be very difficult to listen to: for many people the onslaught of dissonance in much twentieth-century “serious” music amounts to torture, and they retreat to Mozart for relief. Yet music that has no dissonance is equally difficult to listen to, not because it is painful but because it is dull – particularly if it lacks rhythmic definition as well. Twentieth-century minimalist music is not as challenging to Western ears as twentieth-century serialism, but it is just as difficult to listen to attentively. After 5 minutes of unrelenting ostinato, the average listener is asleep…
Permanent dissonance is perhaps not quite as dangerous as permanent harmony. The soporific effect of unrelieved harmony can be disastrous, as anyone who has fallen asleep at a car wheel could testify. Listening to challenging music can be an effective way of warding off fatal sleepiness. Listening to undemanding musak can make sleepiness worse. When things are going well we are lulled into a false sense of security, which means that the crisis when it comes is all the worse because it is unexpected. In the recent financial crisis many people asked why it wasn’t predicted. The truth is that it WAS predicted, by many economists, but politicians and people alike didn’t want to listen to the Cassandras and wheeled out their own “experts” to “prove” that there would be no crisis, despite the mounting evidence that there was an unsustainable boom in house prices and credit expansion. They were asleep at the wheel, and the result was a crash. read more
ART: RB Kitaj