Sunday, April 3, 2016

Peter Dorman — The Recession Template, Except there Isn’t One

There are three different kinds of cycles, as helpfully laid out in an exemplary textbook I’m familiar with. One is the policy cycle, as described by Ritholtz. Yes, that one is flashing a steady green. The second is the investment/profit cycle, whose theoretical basis goes back to Marx, includes Samuelson’s accelerator model, and is driven by the interaction of business costs (including wages), demand, and new investment. The key indicator there is of course profit (and expected profit), and there are no clouds on that horizon at the moment. The third is the financial cycle [described by Hyman Minsky], of which 2008 was the most recent example. Instability of that sort results from credit growth that props up asset prices rather than increasing revenues or from mismatches between liabilities and revenues. In theory it’s possible to see this kind of trouble in advance, although the actual record is spotty. If we are in for a crunch within the coming year it will probably come from financial forces.
The Recession Template, Except there Isn’t One
Peter Dorman | Professor of Political Economy, The Evergreen State College

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