An interesting recent paper here from the Levy Economics Institute of Bard College on the prospects for the US economy in the coming years. The authors use their model, which was developed with the late post-Keynesian economist Wynne Godley (one of the few to have predicted the Great Recession), to take stock of the current situation and to discuss alternative future scenarios.
Nikiforos and Zezza argue that the US economy has performed relatively poorly since the Great Recession, and growth outcomes continue to disappoint. Although headline unemployment is relatively low, there remains substantial labour underutilization in the form of ‘marginally attached workers’ and involuntary part-time workers, which when added to the headline rate is known as the U6 measure. The latter is nearly double the headline rate, and helps to explain the continued weakness in wage growth.
The US economy faces three headwinds which continue to constrain growth: income inequality, fiscal conservatism, and the weak performance of net exports (exports minus imports). Continue reading →
Recently, the economics editor of the Guardian newspaper in the UK, Larry Elliott, presented us with a comparison of the Great Depression of the 1930s and now. In effect, Elliott argued that the world economy was now in a similar depression as then. The 1930s depression started with a stock market crash in 1929, followed […]
There is a disconnect between economic growth and living standards in the UK and ordinary workers are bearing the brunt. While politicians seize on data showing that the economy is growing at a reasonable pace, average real wages have largely stagnated for the past decade.
Simon Wren-Lewis illustrates here the uniqueness of the UK economy among rich countries, in that it experienced positive overall GDP growth and falling real wages between 2007 and 2015. This implies of course that job growth has been strong, and indeed it has, with record numbers in work. Unemployment has fallen, but there has also been significant population growth. So while our political masters crow about record employment levels, they keep fairly quiet about the fact that this has been made possible by the immigration flows that they claim will slow after Brexit. Continue reading →
Global stock markets ended 2016 near record highs and have started 2017 in a similar vein. Optimism about global economic growth, employment and incomes has bounced. The latest data on manufacturing, as measured by the so-called purchasing managers’ index (PMI), the view of companies on their sales, exports, employment and orders, show a rise in […]
What are the likely impacts on the UK economy from the weaker pound? A recent report from the British Chambers of Commerce (BCC) has warned of sluggish growth in the UK during 2017 and beyond. It blames uncertainty over Brexit, along with higher imported inflation and weaker consumer spending due to the sharp fall in the value of the pound since the June referendum on EU membership.
The BCC focuses on a squeeze on consumer spending in the months ahead. This is one effect of a weaker currency: higher prices of imported goods and services will tend to push up overall inflation, meaning consumers will be worse off in real terms if real wages do not rise. Put simply, the pound in our pockets will not go as far. Continue reading →
A short interview with Michael Pettis, an economist I greatly admire for his insights on the evolution of the world economy, economic history and especially China. He predicted that the Chinese economy, having boomed for most of the 30 years since Deng began reform in the late 1970s, would slow dramatically, and may even experience a ‘lost decade’ of slow growth due to its structural imbalances: excessive and poorly allocated investment, and now increasing financial fragility due to rising private sector debt. His work covers a broad range of issues, while his blog is mainly on China, and can be found here.
A short interview with businessman, economist and Labour party donor John Mills, on reviving manufacturing in the UK and its role in rebalancing the economy and improving economic performance, which I have written about recently. He also comments on the likely outcomes of Brexit and the fortunes of Labour under Jeremy Corbyn.
Yanis Varoufakis is a well known left wing economist who had a brief and frustrating stint as finance minister of Greece last year. In these short videos he talks about the prospects of reforming global capitalism from below, and how to bring back prosperity to the European economy.
After years of frugality, German consumers are finally spending again, at a rate not seen since the dotcom boom of the 1990s. According to the FT, private consumption is growing at about 2% per annum, driven by high levels of employment, rising wages, and low inflation and interest rates. This is welcome, and not only for German growth. If sustained, it could help rebalance the economies of both Germany and Europe.
Germany is the largest economy in Europe, and a number of economists have argued that its large current account surplus, far from being a virtue reflecting a culturally frugal population, is the flip side of the large current account deficits in the Eurozone periphery which led to the crisis in 2010. In short, in order for countries in the periphery like Spain to recover and rebalance while sustaining growth and reducing unemployment, Germany’s economy also needs to rebalance. The latter should involve higher wages, consumption and investment and lower net exports driven by higher imports.
The sum of all the current account surpluses and deficits in the global economy must by definition sum to zero, even if in practice measurement errors mean that they don’t quite. Given this fact, it is no good preaching to Spain to reduce its current account deficit in the absence of its trading partners reducing their surpluses. Continue reading →
“Absent a great rebalancing [away from neoliberalism], shared prosperity will become a relic of the past and the Great Recession will likely evolve into the Great Stagnation. If that happens, it is easy to imagine a Weimar-style political scenario in which prolonged mass unemployment and economic hardship release the genie of intolerance and hate.
For these reasons a great rebalancing is essential and urgent, but escaping the pull of neoliberalism will not be easy. There exist major political obstacles associated with vested interests and the capture of political parties. Orthodox economists dominate thinking about economics and economic policy, and market fundamentalism has a deep hold on the public’s imagination. In part, this hold is because of its rhetoric about freedom and individualism, which resonates especially strongly with US cultural images and values. But it is also because extremes are attractive, offering simple but false certainties.
In contrast, economic perspectives that recognize the need for balance also require judgement, and the exercise of judgement is difficult and challenging, being the ultimate expression of individual responsibility. Ironically, neoliberalism, which touts individualism, avoids that responsibility by its embrace of the extreme. That makes it both dangerous and difficult to dislodge, but, to borrow from Mrs Thatcher, if we want shared prosperity, there is no alternative.”
Thomas Palley (words from his 2012 book From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics)