Conclusion
What the hysteresis literature – both theoretical and applied – teaches us is that governments should do everything within their capacity to avoid recessions.
Not only does a strategy of early policy intervention avoid massive short-run income losses and the sharp rise in unemployment that accompany recession, but the longer term damage to the supply capacity of the economy and the deterioration in the quality of the labour force can also be avoided.
A national, currency-issuing government can always provide sufficient aggregate spending in a relatively short period of time to offset a collapse in non-government spending, which, if otherwise ignored, would lead to these damaging short-run and long-run consequences.
The “waiting for the market to work” approach is vastly inferior and not only ruins the lives of individuals who are forced to disproportionately endure the costs of the economic downturn, but, also undermines future prosperity for their children and later generations.Bill Mitchell – billy blog
The intergenerational consequences if austerity will be massive
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia
4 comments:
Hysteresis is overdone. If not having a job for two years leads to a serious degradation of one’s skills, I often wonder how school leavers (who have never had a job at all) manage to find work. Same for people who have taken fifteen years off work to rear children.
There is actually one study which claims the hysteresis effect is non-existent. See:
http://www.econ.cam.ac.uk/cjeconf/delegates/webster.pdf
Still…. I’m sure Bill is basically right: there is a hysteresis effect. But I doubt it is “massive” to use Bill’s phraseology.
THERE IS NO SUCH THING AS A "TREND LINE" and no such thing an an "output gap". The "trend line" consists of artificially stimulated false prices induced by fiat money loans/creation and is unsustainable. The "bust" is nothing more than the market attempting to readjust to sustainable real and unadulterated pricing as the unsustainable price, investment and capital structure is revealed and collapses. The Keynesian program, which caused the boom in the first place, exacerbates and prolongs the bust by purposefully interfering with the necessary repricing process. Further, it is beyond ludicrous to suggest that GENERIC government spending can replicate "trend line" spending since a) there is no "trend line", b) the spending wastes precious resources, and c) the spending interferes with the necessary re-pricing process.
Gobbledygook.
Ralph, it is in the US, simply because US firms are reluctant to hire on people that are either unemployed or have inconsistent work history. Once a person is out for any length of time, it's difficult getting back in until firms get really hard up for hires.
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