Our theory predicted that the decline in employment in tradable industries would be uniform across the country. In other words, when Californians reduce their spending on goods produced throughout the country, employment in tradable industries nationwide will decline. This, too, is exactly what we found.
Making the assumption that the effect of household debt on non-tradable employment within the county is similar to the effect on tradable employment on a national scale, we found that 65 percent of the jobs lost during the depths of the recession were directly related to weak household balance sheets and the associated decline in spending.
We would be happy to entertain other theories to account for the economy’s continued weakness. Any hypotheses, however, must also be able to explain the extremely strong relation between household debt, consumption and unemployment at the county level.
Read the whole post at Bloomberg
How Household Debt Contributes to Unemployment: Mian and Sufi
(h/t Calculated Risk)
3 comments:
Is there any indication that Europen really knows that "printing" is their only way out and that they are really just wagging the dog by the tail such that they are exposing the USA to their situation via derivatives and to hook us into the responsibility of covering their banks with open swap lines, perhaps even as an attempt to prevent us from attacking Iran ?
The derivatives mess looks more to be a trap and weapon than a real money maker. Did the German and Russian secret police help devise these interlinkings ? Or was it the Americans as usual ?
Just an outside the outside of a box view
Mr. Sufi, who I note is a professor of finance and not economics, wrote another paper titled "What Explains High Unemployment? The Aggregate Demand Channel". Sadly, the paper does not cite Wray, Fullwiler, or any other MMT economist who could have explained high unemployment to Mr. Sufi in much simpler terms and arrived at the same conclusion.
The paper can be found at this link: http://faculty.chicagobooth.edu/amir.sufi/MianSufi_WhatExplainsUnemployment_Nov2011.pdf
@ googleheim
The Europeans are well aware of "printing" and the Germans, especially, are terrified it. They constructed the EMU to prevent it. It's built into the structure of the treaties and institutional arrangements. Even though it is obviously needed now, Germany stands firmly opposed. This is why an end run through the IMF is being floated.
The IMF would exact strict austerity conditions for any liquidity provided by acting as the "middleman" for the ECB instead of the ECB doing it directly. Ironically, this is the way the IMF was set up to allow Western finance capital to dictate to the emerging nations. Now it is being turned on the European periphery.
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