Wednesday, August 31, 2011

Martin Wolf — It's the demand, stupid

The depth of the contraction and the weakness of the recovery are both result and cause of the ongoing economic fragility. They are a result, because excessive private sector debt interacts with weak asset prices, particularly of housing, to depress demand. They are a cause, because the weaker is the expected growth in demand, the smaller is the desire of companies to invest and the more subdued is the impulse to lend. This, then, is an economy that fails to achieve “escape velocity” and so is in danger of falling back to earth.
Martin Wolf, Struggling with a great contraction at The Financial Times.

Nothing most readers here don't already know, since Wolf's analysis is quite similar that of MMT economists. But it is nice seeing something like this at FT. Martin Wolf seems to be one of the very few sane economists in an insane world.


Ryan Harris said...
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beowulf said...

A Wolf column last year ("Austerity is Risky Business") had some outstanding charts that explain Wynne Godley's sectoral balance accounting better than any written description could.