The UK’s pay squeeze – no end in sight?

workersSince the Great Recession, and among the world’s richest economies, pay growth in the UK has been historically weak. The Economist magazine reported on 20th April that the pay squeeze in the UK has eased during the last year or two, but is by no means over.

Nominal wages are now growing at around 3.5% year, while real wages (adjusted for inflation) are growing at 1.5%. In a way, this slight improvement is to be expected, with employment at a high level and unemployment relatively low, creating a tightening labour market, and shifting bargaining power from employers towards workers.

Another piece of good news is that more of the jobs now being created have higher pay. To put it another way, the composition of the workforce is changing. As The Economist put it, “strawberry-pickers have made way for stock-pickers”. Continue reading

Latest prospects for the US economy: can redistribution help sustain growth?

Here is a link to the latest Strategic Analysis on the US economy from the Levy Economics Institute. They publish a short report like this every year around this time, and discuss the performance of and prospects for the US, as well as considering how things could be improved with a change in policy.

The Levy Institute is officially non-partisan, but tends to publish in the spirit of post-Keynesian thinking. The late Hyman Minksy and Wynne Godley spent the latter part of their lives working there and Godley helped build their macroeconomic model of the US economy.

This year, the 14-page report is titled Can Redistribution Help Build a More Stable Economy? In short, the authors examine what they see as the four key constraints on the US economy and which account for the historically lengthy but weak recovery: (1) weak net export demand; (2) fiscal conservatism; (3) increasing income inequality; and (4) financial fragility. These four constraints help to explain the weak performance, as well as some of the political developments of recent years. Continue reading

Michael Hudson interview part 2

Following Tuesday’s video, here is more from this interview with Michael Hudson on Trump’s economic policies, from tax cuts and trade wars to infrastructure, privatisation, industrial policy, Wall Street versus Main Street and Artificial Intelligence and its effects on unemployment.

“America First”, Fiscal Policy and Financial Stability: a report on the US economy

What does the future hold for the US economy, given its current trajectory and recent changes in government policy?

The Levy Economics Institute of Bard College, of which distinguished former associates include post-Keynesians Hyman Minsky and Wynne Godley, has just published its Strategic Analysis report on the medium-term prospects for the US.

Godley is recognised as having predicted a severe recession in the US some years before it began in 2008, due to the unsustainable build-up in private sector debt, particularly among households.

Minsky is also well known for his ‘financial instability hypothesis’ and its implication that ‘stability is destabilising’ in the financial sector of capitalist economies: periods of stable economic growth can create fragile balance sheets in the private sector, which often lead to stagnation or crisis. Continue reading

Michael Pettis on China, the US, debt and trade tensions

Michael Pettis is a Professor of Finance at Peking University’s Guanghua School of Management, and an economist whose work I have found to be original, interesting and inspiring. His book The Great Rebalancing explores the role of current account imbalances in the Great Recession and its aftermath of slow growth. I explore some of his ideas in more detail here.

Particularly relevant to today’s events is his prediction that, just as in the 1930s, in a world of limited demand, tensions over international trade are inevitable.

In the short video below, he explores some of the issues facing China’s economy over the next decade, its misallocated investment and unsustainable rise in debt, relations with the US including trade tensions, GDP and its measurement, and liberalization under different economic and financial circumstances.

The American School of Political Economy – two bios

I have posted before here and here on the neglected American School of Political Economy, which has been well-documented in the work of Michael Hudson. Below are brief bios of two of its members, taken from Hudson’s highly informative and thoroughly heterodox J is for Junk Economics (p.210 and p.176).

Their policy proposals were designed to encourage a dynamic and sustainable economic development path with benefits accruing to the broad population, and emphasized abundance rather than scarcity. The success of such policies in driving industrial and agricultural expansion in the US does not mean that they are necessarily applicable to today’s advanced economies.

The ASPE illustrated the importance of economic and social context, which would change depending on whether an economy is catching up with or occupying the technological frontier.

To take one example which remains highly relevant: in today’s America, and elsewhere among the richest countries, infrastructure spending has been squeezed thanks to the austerity drive, rather than used as a means to enhance prosperity following the economic crisis. This has surely been a serious mistake. Continue reading

Useful bubbles

Plenty of economists are critical of the apparent irrationality of financial bubbles, which have occurred throughout the history of capitalism. That they recur despite the efforts of governments to regulate the markets and prevent their worst excesses suggests that, at least to some degree, they are inevitable.

Alan Greenspan, former chair of the Federal Reserve, famously termed the dot-com bubble in the 1990s a bout of “irrational exuberance”.

In an interesting and iconoclastic piece written back in 2004, John Eatwell of Cambridge University considered the possibility of what he termed “useful bubbles”.  In his own words, he was attempting to “row against [a] powerful tide of condemnation”, but was defining “useful in a very limited way – that is, as producing some positive consequences”, despite the potential for panics and crashes. Continue reading