In this short video, some insights from Michael Pettis on Chinese economic growth numbers, the nation’s debt and its sustainability, the extent (or not) of deleveraging, the low share of consumption in national income, the perennial need for a rebalancing of its economy, and how this can be done.
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 →
Donald Trump’s signature policy of 2017, the so-called Tax Cuts and Jobs Act, cut taxes sharply for the richest earners and corporations. As so often in recent decades, many Republicans claimed that this would pay for itself via the increased revenue generated by faster economic growth, which would incorporate higher investment and higher wages for ordinary Americans. There would therefore be little need to cut spending to prevent the deficit from rising.
Such supply-side policies are part of the essence of ‘trickle-down’ economics, which boils down to the argument that making the richest members of society richer will make everyone richer, including those at the bottom. As with previous such policies, this remains to be seen, but the signs are not good.
On the other hand the US budget deficit is rising and is set to rise further. The national debt is also now growing faster than previously. While growth has been stimulated for a while, perhaps more from the demand-side than the supply-side, it seems that it is now slowing once more. This is a long way from the vaunted economic miracle from the President’s State of the Union address. Continue reading →
The Levy Economics Institute of Bard College is ostensibly non-partisan but much of its published output is in the post-Keynesian tradition, and inspired by the work of Hyman Minsky and Wynne Godley, who both worked at the Institute in their later years. Continue reading →
Another in this occasional series from Michael Hudson’s excellent J is for Junk Economics:
“John Maynard Keynes (1883-1946): In the 1920s, Keynes became the major critic of World War I’s legacy of German reparations and Inter-Ally debts. Against the monetarist ideology that prices and incomes in debtor countries would fall by enough to enable them to pay virtually any level of debt, Keynes explained that there were structural limits to the ability to pay. Accusing Europe’s reparations and arms debts of exceeding these limits, Keynes provided the logic for writing down debts. His logic controverted the “hard money” austerity of Jacques Rueff and Bertil Ohlin, who claimed that all debts could be paid by squeezing a tax surplus out of the economy (mainly from labor).
Modern Germany has embraced this right-wing monetarist doctrine. Even in the 1920s, all its major political parties strived to pay the unpayably high foreign debt, bringing about economic and political collapse. The power of “sanctity of debt” morality proved stronger than the logic of Keynes and other economic realists.
In 1936, as the Great Depression spread throughout the world, Keynes’s General Theory of Employment, Interest and Money pointed out that Say’s Law had ceased to operate. Wages and profits were not being spent on new capital formation or employing labor, but were hoarded as savings. Keynes viewed saving simply as non-spending on goods and services, not as being used to pay down debts or lent out to increase the economy’s debt overhead. (Banks had stopped lending in the 1930s.) He also did not address the tendency for debts to grow exponentially in excess of the economy’s ability to carry the debt overhead.
It was left to Irving Fisher to address debt deflation, pointing to how debtors “saved” by paying down debts they had earlier run up. And it was mainly fringe groups such as Technocracy Inc. that emphasized the tendency for debts to grow exponentially in chronic excess of the economy’s ability to carry its financial overhead. Emphasis on debt has been left mainly to post-Keynesians, headed by Hyman Minsky and his successors such as Steve Keen and Modern Monetary Theory (MMT), grounded in Keynes’s explanation of money and credit as debt in his Treatise on Money (1930).”
Despite a brief revival, the world economy is slowing again. A more sustained recovery will require international cooperation to reduce external imbalances in a way that reduces unemployment and maintains low inflation.
This post explores the role of the role of internal and external balance (or lack thereof) in helping us find a return to a more sustainable prosperity. These ideas form much of the theoretical content of The Leaderless Economy by Peter Temin and David Vines, which was published in 2013.
So do we need another policy scheme for restoring global prosperity? I would argue that we do. Global growth picked up in 2017 but, apart perhaps from the US, has begun to falter recently, not least in the UK, but also in continental Europe. Many economies have accumulated high levels of private and public debt, and have made little progress in reducing them. Continue reading →
The BBC reported on Tuesday that government borrowing for the 2017-18 financial year fell to its lowest level in eleven years, at £42.6bn. This was lower than forecast and represents 2.1% of GDP. However much of this reduction is accounted for by reduced spending rather than increased tax revenue. This is because economic growth remains sluggish, at 0.1% in the first quarter of 2018 according to the latest figures, and is failing to generate buoyant tax receipts.
So austerity continues, while growth is faltering. The Chancellor, Philip Hammond, claimed today that “our economy is strong and we have made significant progress.” This is surely breathtaking arrogance. The deficit may be down, but the economy is struggling.
According to economist and entrepreneur John Mills, the UK economy could be doing much better and significant imbalances remain, which are constraining growth and improvements in productivity and wages. Continue reading →