We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth century is over; that the rapid improvement in the standard of life is now going to slow down – at any rate in Great Britain; that a decline in prosperity is more likely than an improvement in the decade which lies ahead of us. I believe that this is a wildly mistaken interpretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another. The increase of technical efficiency has been taking place faster than we can deal with the problem of labour absorption; the improvement in the standard of life has been a little too quick; the banking and monetary system of the world has been preventing the rate of interest from falling as fast as equilibrium requires. And even so, the waste and confusion which ensue relate to not more than 7½ per cent of the national income; we are muddling away one and sixpence in the £, and have only 18s. 6d., when we might, if we were more sensible, have £1; yet, nevertheless, the 18s. 6d. mounts up to as much as the £1 would have been five or six years ago. We forget that in 1929 the physical output of the industry of Great Britain was greater than ever before, and that the net surplus of our foreign balance available for new foreign investment, after paying for all our imports, was greater last year than that of any other country, being indeed 50 per cent greater than the corresponding surplus of the United States. Or again-if it is to be a matter of comparisons – suppose that we were to reduce our wages by a half, repudiate four fifths of the national debt, and hoard our surplus wealth in barren gold instead of lending it at 6 per cent or more, we should resemble the now much-envied France. But would it be an improvement? The prevailing world depression, the enormous anomaly of unemployment in a world full of wants, the disastrous mistakes we have made, blind us to what is going on under the surface to the true interpretation. of the trend of things. For I predict that both of the two opposed errors of pessimism which now make so much noise in the world will be proved wrong in our own time – the pessimism of the revolutionaries who think that things are so bad that nothing can save us but violent change, and the pessimism of the reactionaries who consider the balance of our economic and social life so precarious that we must risk no experiments. My purpose in this essay, however, is not to examine the present or the near future, but to disembarrass myself of short views and take wings into the future. What can we reasonably expect the level of our economic life to be a hundred years hence? What are the economic possibilities for our grandchildren?Read rest here.
Tuesday, September 9, 2014
Sunday, September 7, 2014
The current stage of capitalism is characterized by the increased power of finance capital. How to understand the economics of this shift and its political implications is now central for both the left and the larger society. There can be little doubt that a signature development of our time is the growth of finance and monopoly power. In 1980 the nominal value of global financial assets almost equaled global GDP. In 2005 they were more than three times global GDP. The nominal value of foreign exchange trading increased from eleven times the value of global trade in 1980 to seventy-three times in 2009. Of course it is not certain what this increase means, since such nominal values can fluctuate widely, as we saw in the Great Financial Crisis. They cannot be compared directly and without all sorts of qualifications to the value added in the real economy. But they do give an impressionistic sense of the enormous magnitude by which finance grew and came to dominate the economy. Between 1980 and 2007, derivative contracts of all kinds expanded from $1 trillion globally to $600 trillion. Hedge funds and private equity groups, special investment vehicles, and mega-bank holding companies changed the face of Western capitalism. They also brought on the collapse from which we still suffer. Ordinary people may not be acquainted with the numbers (and even those best informed are not sure of their significance), but people generally understand in different and often deep ways what has been happening: namely, an ongoing process of financialization that has come to dwarf production.Read rest here.
Saturday, August 16, 2014
It’s been nearly six years since the demise of Lehman Brothers “ushered in the worst economic crisis since the 1930s,” and New York Times columnist Paul Krugman would like to move on. But he can’t, and by extension we can’t, because recovery is nowhere near complete. And going for the wrong policies at this moment of fragile improvement but enduring “economic weakness” would spell disaster, and possibly “permanent depression,” according to Krugman. The years since the start of the crisis have been largely defined by two camps, the “too-muchers” and “not-enoughers,” The too-muchers have warned incessantly that the things governments and central banks are doing to limit the depth of the slump are setting the stage for something even worse. Deficit spending, they suggested, could provoke a Greek-style crisis any day now — within two years, declared Alan Simpson and Erskine Bowles some three and a half years ago. Asset purchases by the Federal Reserve would “risk currency debasement and inflation,” declared a who’s who economists, investors, and pundits in a 2010 open letter to Ben Bernanke.Read rest here.
Tuesday, July 29, 2014
In the crazy years of the housing boom the financial sector was a gigantic cesspool of excess and corruption. There was big money in pushing and packaging fraudulent mortgages. The country paid a huge price for the financial sector's sleaze. Unfortunately, because of the Obama administration's soft on crime approach to the bankers who became rich in the process; the industry is still a cesspool of excess and greed. Just to be clear, knowingly issuing and packaging a fraudulent mortgage is a crime, the sort of thing for which people go to jail. But thanks to the political power of the Wall Street, none of them went to jail, and in fact they got to keep the money.Read rest here.
For more on the long-run macroeconomic causes, implications, and effects of US financialization, see recent articles here, here (subscription required) , here, here, here (subscription required), and here (subscription required); for a pertinent sociological analysis, see here
Monday, July 28, 2014
The Federal Reserve has confirmed that the median net worth of families plunged by 40 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That is, the average American family wealth is roughly on par with what it was in 1992. According to the Washington Post:
"The recent recession wiped out nearly two decades of Americans’ wealth, according to government data released Monday, with middle-class families bearing the brunt of the decline. The data represent one of the most detailed looks at how the economic downturn altered the landscape of family finance. Over a span of three years, Americans watched progress that took almost a generation to accumulate evaporate. The promise of retirement built on the inevitable rise of the stock market proved illusory for most. Homeownership, once heralded as a pathway to wealth, became an albatross. The findings underscore the depth of the wounds of the financial crisis and how far many families remain from healing. If the recession set Americans back 20 years, economists say, the road forward is sure to be a long one. And so far, the country has seen only a halting recovery."Read rest here.
Tuesday, July 1, 2014
Neil Irwin has a piece noting housing's importance in the downturn, which gets things half right. First, housing is typically important in economic cycles, as he says, but the picture is quite different than Irwin implies. In a typical recession housing construction falls because it is very sensitive to interest rates. Most recessions are brought on by the Fed raising interest rates to slow the economy. In these cases the decline in housing is a deliberate outcome of Fed policy, not an accidental outcome to be avoided. In contrast, the most recent downturn was brought on by a collapse of a housing bubble. This made it qualitatively different from most prior downturns (the 2001 recession was also bubble induced) in several different ways. First, construction was proceeding at an extraordinary rate of more than 6.0 percent of GDP before the collapse, compared to an average rate of just over 4.0 percent of GDP. This meant that housing contracted far more than it would in a typical downturn. Furthermore, because of the overbuilding of the bubble years, housing fell further than normal, hitting levels just above 2.0 percent of GDP. And, because the downturn was not brought on by a rise of interest rates it could not be reversed by a drop in interest rates.Read rest here.
Friday, May 30, 2014
Victoria Chick and Geoff Tily.
From the abstract:
From the abstract:
Some see a return to Keynes’s ideas in response to the crisis that began in 2007, but we argue that the resurrected ideas belong to that betrayal of Keynes’s thought known as ‘Keynesian’ economics. What happened is almost a reversal of the Whig history view of economics, in which past knowledge is embodied in later theory: Keynes has been made a pre-Keynesian. We trace this transformation mainly through his monetary theory, though we range more widely where necessary. We state what we consider to be his monetary theory, then identify and summarize the key contributions to its destruction. Then, in a speculative section, we suggest a variety of motivations for this subversion of his ideas. We end by assessing what has been lost, in particular his monetary policy, and suggest social and political pressures that may have been partly responsible.Read the rest here (subscription required).
Tuesday, May 20, 2014
The Great Recession officially ended in June 2009, nearly five years ago. However, the labor market has made agonizingly slow progress toward a full recovery, and the slack that remains continues to be devastating for workers of all ages. The U.S. labor market still has a deficit of more than 7 million jobs, and the unemployment rate has been at 6.6 percent or higher for five-and-a-half years. (In comparison, the highest unemployment rate in the early 2000s downturn was 6.3 percent, for one month in 2003.) The weak labor market has been, and continues to be, very tough on young workers: At 14.5 percent, the March 2014 unemployment rate of workers under age 25 was slightly over twice as high as the overall unemployment rate, 6.7 percent. Though the labor market is headed in the right direction, it is improving very slowly, and the job prospects for young high school and college graduates remain dim. A key finding of this paper is that there is little evidence that young adults have been able to “shelter in school” from the labor market effects of the Great Recession. Increases in college and university enrollment rates between 2007 and 2012 were no greater than before the recession began—and since 2012, college enrollment rates have dropped substantially. This means there has been a large increase in the share of young high school and college graduates who are idled—neither employed nor enrolled in school—by the weak economy. This represents an enormous loss of opportunities for this cohort that will have lasting consequences.Read rest here.
Wednesday, April 2, 2014
It is increasingly common to hear stories of how government intervention led the economy astray during the Great Depression, and how FDR’s New Deal actually delayed a recovery that was on its way, e.g. the popular book my Amity Shlaes The Forgotten Man. This view is at odds with the conventional notion in the accepted historiography of the period and with old Keynesian views as exposed by Galbraith (1954), but not with the mainstream of the economic profession. It is important to note that not only old Monetarists like Friedman and Schwartz (1963) or Meltzer (2003), but also New Keynesians like Romer (1992) suggest that the recovery was essentially caused by monetary policy and that the fiscal policies associated with the New Deal were essentially of secondary importance for the recovery.
Read the post here.
Tuesday, April 1, 2014
Yeah, well, I think there are some noteworthy things. First of all, just to explain what this means, what it means is that these largest banks, like Bank of America, Goldman Sachs, JPMorgan, and so forth get an advantage when they borrow money in the financial markets, because the people who lend them money believe that if they get into trouble, the government will bail them out, that the taxpayers will bail them out. And this has been known since at least 1984, when Continental Illinois Bank almost went under and the government bailed them out, and then the government said, well, we're going to bail out the 11 biggest banks that are too big to fail, and we're going to bail them out in the future. And, of course, that's exactly what happened in the financial crisis of 2007-2008. So when investors lend money to these big banks, we've thought for a long time that they expect that they're going to get bailed out if they get into trouble, so they'll charge less money to these big banks...
Tuesday, March 11, 2014
The last official business cycle peak occurred in December 2007. After that, the economy entered 18 months of virtual freefall—with job losses averaging more than 750,000 per month for the worst six-month stretch. The official end of the recession was June 2009—and some have recently declared full recovery has been reached in the 54 months since, as 2013 per capita GDP finally exceed its pre-recession levels. However, for the very large majority of Americans who rely on paid employment for the vast majority of their income, recovery likely still feels very far off. And they’re right—by any reasonable definition the United States is far from having reached a full recovery. That’s because simply clawing back to the per capita income level that prevailed before the start of the Great Recession is far too low a bar to clear to declare mission accomplished on recovery. The reason for this is simple: Joblessness (and the sapping of bargaining power that accompanies its rise even for still-employed workers) rises whenever a gap develops between the economy’s underlying productive potential and aggregate demand for goods and services. The intuition here is simple: A given number of customers’ demands can be satisfied with fewer people as each incumbent worker becomes more productive, and each new potential worker (new graduates, for example) seeking to enter the workforce will only be employed if there is extra consumer demand for what he or she produces. So, demand has to rise in line with the economy’s productive potential in order to keep joblessness from rising.Read rest here.
Tuesday, February 11, 2014
Not that is really necessary. But the evidence continues to be overwhelming. Christian Schoder in a recent paper (here; subscription required), following in the steps of the classic paper on the subject by Fazzari et al. (1988) and looking at the micro data on investment concludes that:
"Overall, demand constraints seem to be crucial factors contributing to the slowdown of accumulation in times of economic distress relative to credit market conditions. In contrast to the prediction of the financial accelerator literature that credit constraints tighten in the downturn (relative to demand constraints) as net worth deteriorates, the cash-flow coefficient does not exhibit a clear counter-cyclical pattern.In other words, cost of capital variables, that are measured at the firm level using a CAPM model and approximating by the ratio between interest payments and stock of debt, are not significant. Sales, i.e. demand, is what drives investment. And yes that means that more government demand was needed. In his words:
We further find that the most tremendous declines in business investment which occurred in the contexts of the recessions in 1982, 1990, 2001 and 2008/09 were driven by the demand side of the capital market rather than the supply side since, during these times, an improvement of investment opportunities reflected by an expansion of sales growth and Tobin’s q, on average, induced firms to raise investment to a disproportionately large extent whereas an easing of credit constraints, on average, provoked only a disproportionately small expansion of investment."
"The results suggest that investment tended to be driven by adverse demand rather than supply conditions during the most severe recessions. Especially, the decline of investment after the financial meltdown in 2007–2008 is associated with inferior demand conditions compared to supply conditions. This view is consistent with the chronicles of US fiscal and monetary policy stance regarding the management of aggregate demand and credit flow. Our policy evaluation implies that the policy attempts to stabilize demand were insufficient in order to stabilize investment in the recent economic crisis."That's what the recent evidence suggests. No surprises here.
Saturday, February 8, 2014
January's job numbers were fairly dismal, but the bad cheer wasn't equally spread. Private sector employment, as usual, increased—by 142,000 jobs last month. At the same time, public sector employment declined. Government employment at all levels was down 29,000 in January.Aside from the brief census blip in early 2010, this has been the usual state of affairs for the past four years, ever since the recession officially ended. The chart below shows public and private sector employment indexed to 100 at the end of the recession. Private sector employment is up 6.8 percent. Public sector employment is down 3.4 percent. And that's during a period when population grew 2.3 percent. On a per capita basis, government employment has declined more than 5 percent since 2009, and it's still declining.This is the price of austerity. If public sector employment had been growing normally during this period, we'd have about a million more jobs than we do now and the unemployment rate would probably be below 6 percent. We are our own worst enemies.See more here.
Thursday, February 6, 2014
The aftermath of the Great Recession has led to outright wage declines for the vast majority of American workers in recent years, resulting in a full decade of essentially stagnant wages. Though you might expect public-sector wages to have weathered the recession and its aftermath better than private-sector wages, the opposite appears true: While the decline in real public-sector wages started later, it was steeper and ultimately more damaging. According to the Bureau of Labor Statistics’ Employment Cost Index, public-sector wages have fallen by about 1.3 percent in inflation-adjusted terms since 2007, where private-sector wages have been essentially flat (an increase of 0.3 percent). Unlike in previous recoveries, state and local government austerity has been a major drag on job growth and the broader economy. The number of public-sector jobs fell by almost 3 percent in the three years following the recession, while the number of private-sector jobs grew (albeit anemically). The fact that public-sector wages have lagged behind those in the private-sector exacerbates government’s drag on the economy.Read rest here
Wednesday, February 5, 2014
The retrospectives of Ben Bernanke on his leaving the Fed seem to be coming in overly positive. While there is much that is positive about his tenure as Fed chair, many of these accounts have a rather selective view of history.Read rest here
The part that is clearly wrong is treating Bernanke as a bookish academic who got plucked down in the middle of a financial crisis that was not his making. While Bernanke had a distinguished academic career, he had been in the middle of the action in Washington since 2002. That was when he was selected to be a governor of the Fed. He served as a governor at Greenspan’s side until he went to serve as head of President Bush’s Council of Economic Advisers in June of 2005. After a brief stint as the chief economist in the Bush administration he returned to take over as chair of the Fed in January of 2006.
It was during the period that Bernanke was at the Fed and his tenure in the Bush administration that the housing bubble grew to such dangerous levels. While Bernanke does not deserve as much blame for this as Greenspan, there were few people better positioned to try to deflate the housing bubble before it posed such a large risk to the economy. During this time Bernanke was dismissive of suggestions that the unprecedented run-up in house prices posed any problem. There is no evidence that he dissented in any important way from Greenspan’s view that the Fed need not be concerned about the housing bubble or the innovations in the financial industry that was supporting it.
Sunday, February 2, 2014
We now know that the U.S. economy grew at a 3.2 percent annualized rate in the last quarter of 2013, and grew 1.9 percent during all of 2013. This is simply too slow to generate a full recovery from the damage inflicted by the Great Recession in a reasonable amount of time. Too many policymakers seem eager to move on to other economic issues, but the necessary condition for addressing almost every other economic challenge—be it boosting job quality or increasing opportunity or checking the rise of extreme inequality—is a return to full employment, and that should be the nation’s first priority.See rest here and here
Saturday, January 25, 2014
What's are today's young adults really like? For those who've spent too much time gazing into the dark recesses of Thought Catalog or obsessing over "Girls," the Department of Education has a new report that offers up some enlightening answers. In the spring of 2002, the government's researchers began tracking a group of roughly 15,000 high school sophomores—most of whom would be roughly age 27 today—with the intention of following them through early adulthood. Like myself, many of those students graduated college in 2008, just in time to grab a front-row seat for the collapse of Lehman Brothers and the economic gore fest that ensued. In 2012, the government’s researchers handed their subjects an enormous survey about their lives in the real world. Here, I've pulled together the most interesting findings.Read rest here
Sunday, January 19, 2014
If we compare the economic recovery of the United States since the Great Recession with that of Europe – or more specifically the eurozone countries – the differences are striking, and instructive. The U.S. recession technically lasted about a year and a half – from December 2007 to June 2009. (Of course, for America’s 20.3 million unemployed and underemployed, and millions of others, the recession never ended – but more on that below.) The eurozone had a similar-length recession from about January 2008 to April 2009; but then it fell into a longer recession in the third quarter of 2011 that lasted for about another two years; it may be exiting that recession currently.Read the rest here.
Wednesday, January 8, 2014
Following the last post (see here and here), it is worth pointing out that over the course of preceding recessions since 1957, Congress has not let long term unemployment insurance to cease with sustained high unemployment.
By Heidi Shierholz
Four and a half years after the official end of the Great Recession, there is still a gap in the labor market of nearly 8 million jobs. With job opportunities so weak for so long, workers have gotten stuck in unemployment for unprecedented lengths of time. The share of the workforce that is long-term unemployed is nearly twice as high today as it was in any other period when Congress allowed an extended benefits program to expire. The figure shows the share of the labor force that has been unemployed for more than six months. In the Great Recession, that share rose to more than two-thirds higher than the previous record set during the downturn of the early 1980s. It has since come down significantly, but it is still above the previous record. Today’s long-term unemployment crisis is no mystery; it is exactly what we would expect given how long our labor market has been as weak as it has. It is not the fault of individual unemployed workers failing to exert enough effort or flexibility in their job search.Read rest here
Monday, January 6, 2014
The economic recovery in the US since the Great Recession has remained sub-par and beset by persistent fear it might weaken again. Even if that is avoided, the most likely outcome is continued weak growth, accompanied by high unemployment and historically high levels of income inequality. In Europe, the recovery from the Great Recession has been even worse, with the euro zone beset by an unresolved euro crisis that has already contributed to a double-dip recession in the region. This book offers an alternative agenda for shared prosperity to that on offer from mainstream economists. The thinking is rooted in the Keynesian analytic tradition, which has been substantially vindicated by events. However, pure Keynesian macroeconomic analysis is supplemented by a focus on the institutions and policy interventions needed for an economy to generate productive full employment with contained income inequality. Such a perspective can be termed “structural Keynesianism”. These are critical times and the public deserves an open debate that does not arbitrarily or ideologically lock out alternative perspectives and policy ideas. The book contains a collection of essays that offer a credible policy program for shared prosperity, rooted in a clear narrative that cuts through the economic confusions that currently bedevil debate.
Contributions by Richard L Trumka, Thomas I Palley, Gustav A Horn, Andreas Botsch, Josh Bivens, Achim Truger, Jared Bernstein, Robert Pollin, Dean Baker, Gerald Epstein, Damon Silvers, Jennifer Taub, Silke Tober, Jan Priewe, John Schmitt, Heidi Shierholz, William E Spriggs, Eckhard Hein, Heiner Flassbeck, Gerhard Bosch, Michael Dauderstädt.
The book is available for $8.35 at AMAZON.COM (USA), for Є5.52 at AMAZON.COM (EUROPE), and £4.64 at AMAZON.COM(UK). A free PDF is available HERE.