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Thursday, December 3, 2015

John Quiggin makes a good point about secstag


John Quiggin - to what extent is secular stagnation just an available heuristic? Wherein he quotes himself from a much longer article that shoots down the theory that the internet is a generator of inequality. But it's this aside below that is worth more than the rest of that article combined:

A further reason for scepticism about technological stagnation is that this explanation has been advanced in recessions and depressions ever since the beginning of the capitalist business cycle in the nineteenth century. Such claims represent the flipside of the equally common claim, made during every period of sustained expansion, that the economy has entered a New Era of untrammelled growth. The most recent episode of this kind was the ‘irrational exuberance’ of the 1990s, fuelled by optimistic claims about the potential economic implications of the Internet, which was opened to commercial use by the US Congress in 1992, and by capitalist triumphalism exemplified by Fukuyama’s The End of History.The collapse of the ‘dotcom’ bubble was softened by the housing bubble that developed shortly afterwards (again, not at all a new phenomenon), but the result was only to worsen the inevitable crash in 2008. The similarity of these events to previous bubbles and busts is good reason to doubt that they represent, or that they have inaugurated, a new phase in the evolution of capitalism.

Personally, I still think that secstag, to the extent it exists, is entirely the product of right-wing ideology:

1. Excess saving beyond the demand for investment creates a ZLB problem, but the Asian part of excess saving was demanded by the IMF, and the kleptocratic elite/corporate side of excess saving is facilitated by right-wing kleptocratic international tax arbitrage.

2. Government investment demand can fix things; yet right-wingers demand not only that governments avoid deficit spending to fight their way out of recessions, but also (in the case of Europe) demand that countries balance budgets in the midst of contractions.

3. Similarly, right-wing austerianism has encouraged a worldwide deficit in public infrastructure spending. Sorry, but you can't have economic growth without public infrastructure.

4. (I've only just learned Mundell-Fleming, but) If Y-bar really equals Af(K,L), or more precisely Af(K,L,G,H) where G is public infrastructure and H is human capital, then obviously the long-term trend in Y-bar will drop to zero as right-wingers demand less and less investment in infrastructure and human capital. These capital deficits add up.

5. Even moreso (still with Mundell-Fleming), the right-wing demand for excess central bank fixation on deviations of Y above Y-bar will mean dragging the long-term trend down. You can't speed up when you're always tapping on the brake.

Sounds like a great basis for a mass-market economics book.

But I'd still accept Quiggin's observation that this whole secstag thing might just be cyclical. I'd say it's not a "recency effect" problem, but rather that there are long-run cycles where economic policy slowly oscillates from stupidity to common sense.

In which case, there's no point wasting time writing the book, since it'll probably all fix itself eventually.


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