A nicely
explained economics piece here at NPR.
Fast-forward to 2013, and former Treasury Secretary Larry Summers,
fresh from his stint as director of the National Economic Council in the
Obama administration, resurrected the term at a speech at the
International Monetary Fund in Washington, D.C. And he has been warning
the world about it ever since.
Secular stagnation, he says, "may be the defining macro-economic challenge of our times."
Like
Hansen in the 1930s, Summers points to declining population growth as
one source of stagnation. But he also points to other factors. A big
one: Our economy might require less investment than it used to. Think
Kodak (the old economy) vs. Instagram (the new economy). Kodak required
factories and assembly line workers and trucks and film and film
developers and a bunch of other resources to give us photography.
Instagram basically needs just an office with laptops and a few hundred
smart workers. It needs much less investment.
Meanwhile, there
are a lot of savings out there looking for a return, and there don't
seem to be enough investment opportunities to sop it all up. As we
explained in last week's Planet Money newsletter,
a shortage of investment relative to a glut of savings is why we're now
in the upside-down world of super-low interest rates.
Summers
warns that this world of disappointing growth and super-low interest
rates means it will be hard for traditional tools, like the Fed's
cutting of interest rates, to rescue us from future recessions. And it
could mean the only way we'll get solid growth is if the government
attaches the rocket boosters of deficit spending and cheap credit to the
economy. Even then, it might look just OK-ish.
Sounds very plausible. But still not sure about this:
Secular stagnation does have an upside, actually: Low interest rates
mean it's supercheap to borrow. That includes for the government. Not
only that, but the government might be able to rack up big deficits and
give us tons of cheap credit and not cause runaway inflation. That's why
respected folks like the former chief economist of the IMF, Olivier
Blanchard, are discarding the old rules and saying that deficits don't matter like they used to.
Secular stagnationistas are arguing
that now is the time to spend big, on things like roads, bridges and a
Green New Deal. That's one way to increase investment in the economy and
get us out of this hole. Of course, many disagree. They have faith that
new technologies in the pipeline will expand industry, increase
investment and productivity and rescue us from stagnation.
12 comments:
Doing more with less has never been a cause of unemployment. The bursts of unemployment that used to mystify everyone in Medici Florence, and the unemployment we have now have the same source; Fractional reserve banking. Florentine fractional reserve banking caused unemployment when the banks grew fearful and the money supply contracted. Now it causes more or less permanent unemployment since loanable funds are going out to non-job creating applications.
Listening to proven failures isn't going to get you there. You have to analyse what causes employment in the first place, in order to get more of it. Ask intelligent questions.
There are a lot of misconceptions about demand management and these come from the reality that central banking is a thieving racket. The way to increase demand is debt retirement through new cash creation, sending the cash trucks out just as quickly as is convenient. The way to reduce demand is to establish a reserve asset ratio and raise it. Thats two valid demand management tools. There is only two of them. There is not three, there is not four, and red ink is not one of these two.
There is no low interest rates to Americans at the moment. The low interest rate is a subsidy to the banks. This is stealing.
Having an attitude to quickly spend big on infrastructure is always a mistake. Because it will lead to inefficiency and cost blowouts. As time goes on more and more depends on infrastructure. You want more and more resources devoted to infrastructure over time. But you need to slowly grow momentum over time to maintain cost effectiveness.
For example I would like to open up an energy corridor between Alice and Tennant Creek. Starting off basing it around concentrated solar power towers, and using a lot of unemployed people on minimum wage, two weeks on four weeks off plus free food, accommodation and train tickets hither and yon. But I am aware that unless the project is run painfully slowly and debt free it will wind up a disgraceful waste of money.
No-one should ever allow themselves to get too excited about infrastructure. Start slow and start yesterday and never make infrastructure about demand management. Because there are only two valid methods of demand management. Not three not four not red ink not infrastructure. Never attach red ink to infrastructure. That ought to be an iron law. Because with infrastructure we are talking about decades and we ought to be talking about centuries. So red ink can never be appropriate.
Economics always has required increasing population. Obviously that cannot go on indefinitely. What is little appreciated is that in many third world nations family sizes are declining. It is expected the global population will top out circa 2050. What is going to happen then? Australia has maintained economic growth through migration but now there is blow back against that. It is an artifice that allows governments to crow about GDP growth in the absence of new economic activity that offers future potential.
I don't see any solution to secular stagnation. Perhaps the time is coming when we think less about GDP and more about improving the economic opportunities for more people. For example, if you are over 60 and lose your job good luck finding another one and surviving on Newstart(look at the stats, the over 55s are the largest growing group on long term Newstart).
We get our real-loanable-resources from surplus budgets and from people willing to save money. It confuses the matter when banks get subsidised funds from a central bank or can conjure up their own funds amongst themselves. But these funds get their power from business buying producer goods or in other ways renovating their business. Deficit spending detracts from this. Its always an act of vandalisation. But its understandable that people think otherwise since banks and companies misuse most of the loans available to them. They use these loans, not for business renovation or durable producer goods. But for general exploitative usury, land inflation, exotic derivatives, and the big companies seldom make the financial papers without going on these spending sprees that are not wealth creating in any operational sense.
Since the business ecology is so out of whack and top heavy with the big guys, and since big business cannot be relied on to make wealth creating decisions it is fairly useful to think of what creates employment in terms of the sole trader alone, and then build up ones model here before deciding the best way to look after the bigshots. To cut a long story short where the bigshots are concerned, I would not cut company tax to artificial entities. I would keep company tax high for the time being. I would allow them to get out of paying most of that tax by way of accelerated depreciation. That would drain their funds away from non-wealth creating undertakings and instead get them to retool. But we can get a lot more traction thinking about the sole trader.
Our model of employment ought to be one where having been able to retain their profits, a sole trader finds himself with too many tools. Not with too much land but too much gear on his land. Too many producer goods that he cannot possibly work himself. The permaculture farmer has too many beehives, flowering trees, a mead brewing facility, ponds dams, fenced paddocks, too much fruit falling on the ground and he cannot possibly use all this gear on his own. He has a cash flow. He's going to have to find people to help him increase that cash flow and so he employs people.
Their ought to be a Georgist tax in this scenario. After some sort of threshold, lest he waste all his earnings on land speculation rather than keeping tooled up to the gills and making money. We want an economy where people go after cash flow and not asset inflation gains. The idea is to have things developed to the point of not being able to squeeze that much more useful stuff on the ground.
This development comes from retained earnings. But its this same scenario that gives savings any real power. Its only when savings are applied to more producer goods and business renovation .... thats when these savings will produce more employment. The real savings is reinvesting profits into producer goods. Not anything flash that the financial sector wants to do. Savings directed through the banks only help with employment if they are following suit.
Diverting savings to a mortgage for a house that already exists doesn't create employment. All sorts of other bigshot investments like takeovers also won't do the job. Investments in any number of exotic financial products won't do it. As the sophistication of the financial sector grows the strength of the labour market weakens. Although at first they seem to grow together when you have a lot of legalised counterfeiting (monetary growth) going on. So this is the economy of a junkie. Weak labour market all the time except when you get your junkie fix.
Now consider that the sole trader invests in producer goods that depreciate in value. To attach high interest debt to such goods therefore ought to raise an eyebrow. Our policy-settings are good only if the sole trader is getting low interest loans for these producer goods and no taxes on retained earnings. This is when we will have a tight labour market again. But consider the alleged low interest rates of today? Though these bankers were getting their funds for free, a fellow who made excellent wood-gas burners mentioned that he would have had to take a loan at 15%. Now while that might not be a sign that its time to take the bankers and hang them from a high tree, it is a sign that policy has gone very badly off the rails.
"Economics always has required increasing population. " A form of capitalism that is based around state-supported usury demands growing population to make good the loans. But a form of capitalism that only allows just enough usury to oil the wheels of commerce (and no more) need not be so constrained. Yes we would need to keep our old guys really healthy and working part-time a lot longer. But there is a lot of anti-Malthusian benefits to be had with more continent per head.
Bear in mind the first time in centuries that we had really high wages in Europe was in the decades after the Black Death and up until about 1500. It was magnificent back there for awhile. The employers were having to give all the peasants free beer to keep them working. What a glorious continent it was back then for just a few decades.
https://image.slidesharecdn.com/gregoryclark-afarewelltoalms-150302013841-conversion-gate02/95/gregory-clark-a-farewell-to-alms-54-638.jpg?cb=1425260370
Check out the situation of a peasant circa 1470. Since there was so much Catholic property and really good hospitality customs associated with this Church property, a peasant could save a stash of money and bugger off for a walking trip of England or Europe on the basis of these really high wages. Of course this was a fleeting thing, but its worth noting that there are positive Malthusian effects to be had in a falling population.
So for example when the Chinese population collapses after about 2040, once thats all worked out they may wind up with maybe 400 million Chinese on very well sculptured land toward the end of the century. If we can avoid a war with these people that will be a really wonderful place when it happens. Lets not listen to this Mearsheimer talk. Lets stay out of any rumbles by becoming extremely well armed.
In any case if things are going very well our girls may decide to have two kids each. And if the first two were pretty talented one would hope they went ahead and had two more.
Notice that the wages costs are at their peak only two or three decades after population has bottomed out. These wages were discovered by way of comparing known food prices to wages. So they aren't the entire story, and housing costs may have been at their lowest closer to the time when population was at the bottom. So it might be that the best standard of living was earlier in the century than the wages/food peak around the 1470's. It would have been a mighty thing to be born around 1400 I would say.
http://www.applebymagna.org.uk/appleby_history/images/in_focus/17_appleby_population.jpg
Modern infrastructure is more about quality of life than productivity gains, compared to decades ago the long term economic return is minuscule. Australia's big mistake was rail. The major cities should be going underground with subway and encouraging people to get off the road because every new road just means more cars and no decrease in congestion. Roads take up a surprising amount of land area and I wonder if bitumen is a substantial contributor to urban heat island effects. There is also another very neglected issue here: air pollution especially from diesel. It is laughable that people carry on so much about second hand smoke yet ignore air pollution on the street and even worse in the homes. That air pollution is far more dangerous than second hand cig smoke.
We need investment in new industries but new industries often need some form of initial protection. Neoliberals hate that idea and have this fanciful idea of a level playing field while other nations readily seek whatever advantage they can gain.
I don't see that modern politicians and economists have much to offer us, both call for innovation but ironically are distinctly lacking in creative thinking.
Quite. Although my main form of protection would be running a lower AUD price by way of exercising monopsony interest rate pricing on incoming foreign loans to our domestic banks. In the extreme version if our banks aren't allowed to borrow off the European banks, then our dollar will be cheaper, or exporters won't struggle to compete, and we probably won't need tariffs, which really are pretty horrible things.
When you see dysfunction in an economy always go to the finance sector first.
A lower dollar is a good idea. A big problem in Australia is so much investment in property which robs investment in start ups. Property investment is a dead weight on the economy because there is no productivity return.
The finance sector needs a root and branch revolution but is so powerful governments tremble before it. It is a ridiculous situation where the finance sector constitutes up to 25% of the stock market. Finance should be little more than an administrative function for the dispersal of capital in appropriate ways. It has become an end in itself and leeches off the productive arms of the economy.
Indeed. But they are the most influential people internationally speaking. So they are going to be a hard beast to lasso, wrestle to the ground, and castrate. Monetary conditions in Australasia in the 50's and 60's were virtually idyllic. Thats why we could have such a great standard of living without even trying. Without people even being very ambitious. If you didn't like your boss you could walk across the road and get another job.
But consider if all those loanable funds that went to mortgages had gone to small business renovation instead? With a low dollar policy we'd be absolutely kicking butt by now.
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