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.Econospeak
And rare these days is the competent economist Who has thought through the benefit-cost calculation and failed to conclude that the governments of the United States, Germany, and Britain have large enough multipliers, strong enough hysteresis coefficients for infrastructure investment programs, and sufficient fiscal space–favorable likely distributions of r-g–to make substantially more expansionary fiscal policies than they are currently following almost no-brainers.
It is against the backdrop of this situation that we find aversion to fiscal expansion being driven not by pragmatic technocratic benefit-cost calculations but by raw ideology.…
Mason’s research paints a grim picture. A well-functioning financial system is supposed to channel savings to their most productive use. Instead, the U.S. system, in total, seems to be more interested in getting money out of firms and into the accounts of wealthy shareholders. As a companion Roosevelt Institute report also released Friday points out, it will take pulling on multiple policy levers to reverse this kind of massive trend. It seems we need to find many levers in order to move the financial world.WWCEG — The Equitablog
…the whole point of monetary policy is to stabilize output. For monetary policy to work, it needs to able to reliably offset lower than normal spending in other areas with stronger than normal investment spending. If after six years of extraordinarily stimulative monetary policy (and extraordinarily high corporate profits), business investment is just “where one would expect given that the overall recovery has been disappointing,” that’s a sign of failure, not of success.Is the conclusion that monetary policy was wrong (should have been tighter), or that it was not up to the job. Those advocating for the primacy of fiscal policy would argue for the latter.
All eyes are focused on the US economy and its performance. The explanations as to what motivates this are residual. With growth in China slowing, India’s economic performance disappointing, Japan still in recession and the uncertainty in Europe resulting from EU brinkmanship with respect to Greece, growth in the US seems to be the only immediate hope for the long awaited recovery from the six years of sluggishness that have followed the 2009 crisis. So, only the US can help.
Lafayette said...
{Between 2008 and 2011, fiscal impact was positive, indicating that government policy was stimulative; in recent years, it has been negative, indicating restraint.}
And, what happened in 2008 to boost the economy? Lead-head left office and handed Obama on a platter the worst recession since the 1930s.
What did a Dem Prez and a Dem Congress do? They passed the ARRA stimulus spending bill of $831B in 2009.
Were Americans grateful for having spiked unemployment at 10%, when it could have gone to Great Depression levels of 20/25%?
Nope - they voted the Koch Bros' T-Party in control of the HofR in 2010. All Stimulus Spending stopped dead.
How dumb can voters get? Really effing dumb ...Not only dumb. Misled by a massive propaganda effort to convince them to vote against their economic interests for ideological reasons. The result. A repeat of 1937.
The latest US Federal Reserve Bank Bulletin – (Volume 100, No. 4) was released on September 4, 2014 and – Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances provides a very deep insight into what has been going in America over the period since 2010 with some comparative data from 2007-2010. So we get a glimpse of what happened during the crisis period in family incomes and wealth holdings (by a number of different characteristics) and then see what has transpired during the so-called ‘recovery’. The results will lead you to question the extent to which using the term ‘recovery’ is meaningful. In the growth period 2010-13, only the top 3 per cent of the income distribution have enjoyed real income gains whereas the bottom 40 per cent have seen major real cuts. A similar story relates to changes in family wealth. The reality is the highest income earners are capturing the real income growth at the significant expense of the rest notwithstanding the overal decline in unemployment. It is a recipe for disaster – an increasingly unequal society where some cohorts have virtually no chance for upward mobility.Bill Mitchell – billy blog
So which is it? Has hysteresis done 1.8%-points of damage to 25-54 employment or 0.9%-points to total employment? Have we done 3/4 of the work of recovery relative to the proper labor force-trend share benchmark? Or have we done only 1/3 of the work of recovery?WCEG — The Equitablog
The 25-54 data and the economy-wide aging trend-adjusted data used by the CEA appear to be telling us very different things both about the cyclical state of the labor market and about the damage done by hysteresis. How to reconcile? Which is right?
The Great Recession ended more than five years ago, but good luck trying to convince many Americans of that.Nearly half of all Americans, 49 percent, think the recession never ended, according to a new NBC/Wall Street Journal poll. And that number actually represents progress, since 57 percent felt that way in March. In fact, many polls have consistently shown that most Americans have long thought the recession, which officially ended in June 2009, is still ongoing.The new NBC/WSJ poll has a chart that helps illustrate why this might be: Despiterecord levels of hiring and record highs in the stock market, huge numbers of people say they're still feeling the recession's effects. Here's the poll data:Summary: It's the capital share v. the labor share.
Overall this was a solid report. Private investment rebounded in Q2, and that is the key to more growth going forward.Calculated Risk
Dimitri Papadimitriou, in Reuters’ “Great Debate” series:The Multiplier EffectThe U.S. needs an export strategy led by research and development, and it needs it now. A serious federal commitment to R&D would help arrest the long-term decline in manufacturing, and return America to its preeminent and competitive positions in high tech. At the same time, increasing sales of these once-key exports abroad would improve our also-declining balance of trade.It’s the best shot the U.S. has to energize its weak economic recovery. R&D investment in products sold in foreign markets would yield a greater contribution to economic growth than any other feasible approach today. It would raise GDP, lower unemployment, and rehabilitate production operations in ways that would reverberate worldwide.…For our R&D/export model, we posited a modest infusion of $160 billion per year — about 1 percent of GDP — until 2016. We saw unemployment fall to less than 5 percent by 2016, compared with CBO forecasts that unemployment will remain over 7 percent. Real GDP growth — instead of hovering around 3.5 percent, by CBO estimates, on the current path — gradually rose to near 5.5 percent by the end of the period.
