Wednesday, December 21, 2011

Some things to keep in mind in thinking about 2012

Prior to the global financial crisis and the ensuing "balance sheet recession" — which I would call a modern depression instead, i.e., only the social safety net erected after the Great Depression has prevented a repeat — the driver of the global economy was US consumption, and the driver of that was the insatiable US consumer, most recently bolstered by an asset bubble in housing that no one believed could end.

That model has now collapsed and there is nothing in the offing to replace it absent a return to the status quo ante, which seems implausible anytime soon.

Where is the demand going to come from for global recovery? Who is going to step up if not the US consumer refueled by private debt? What firms are going to invest in the absence of rising demand? What banks are going to increase lending without rising incomes to support obligations? What governments seem likely to step up to fill the gap?


googleheim said...

This ties into your post from last week.

FDR planning is required

Obama is dreaming of being Reagan still ?

He needs to wake up to the FDR before we're SOL perhaps by going AWOL on the austrianism by beefing up NASA and DOE and others with some MMT

googleheim said...

via the U$D

Matt Franko said...

Sheer poetry Goog! ;)

john f said...

Tom,your last paragraph reminds me of an article I read 3 years ago.

If there is one insight I've picked up from reading the MMT sites is the focus should be on real resources and not as much on the monetary system we use to distribute those resources. Unfortunately, our public debate is still stuck on the deficit, nat'l debt, etc. As Mary Kaldor made clear to me at least,there is more to it than just financial reform
" But all the same the new paradigm is coming against limits -limits imposed by existing patterns of income distribution, limits resulting from the saturation of consumer markets in the West and, perhaps most importantly the economic and environmental limits that are the consequence of the dependence of this pattern of growth on carbons, especially oil. What is needed now are a new set of institutions capable of shifting the pattern of demand so as to allow the new paradigm to diffuse through out the global economy in a sustainable way...The new Keynes has to be a Neo-Schumpeterian. Neo-Schumpeterianism is both supply side and demand side; it is about matching the social and institutional framework to the techno-economic paradigm."
Hopefully, the new Schumpeter will be an MMTer also!

Tom Hickey said...

@John F

I agree with that wrt the big picture. I would like to see institutional overhaul. At the same time, while that his happening people have to continue to exist and under present conditions, that means an improvement in the economy as it is.

We can't wait for institutional reform or, better, overhaul, while billions of people are being adversely affected. MMT shows how this problem can be addressed relatively quickly by governments stepping in to increase effective demand by injecting net financial assets iaw the sectoral balance approach and functional finance.

BTW, Randy Wray was a PhD student of Hyman Minsky, who was a PHD student of Schumpeter.

"Hyman Minsky wrote his thesis at Harvard under the supervision of Joseph Schumpeter. On the death of Schumpeter in 1950, supervision was taken over by Wassily Leontief." Methodology and Microeconomics in the Early Work of Hyman P. Minsky by Jan Toporowski." Levy Working Paper No. 480

I think that Schumpeter got it essentially correct in Capitalism, Socialism and Democracy.

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allowentrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and eventually destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy.

Of course, the trend has developed somewhat differently than Schumpeter foresaw, but close.

JimW said...

Ah well, at least we have a thriving arms industry, as well as plenty of opportunity for employment and creative genius in the defense industry generally, both private and public. Don't forget that so much of our technology comes originally from our defense initiatives. And just look at the growing opportunity for private prisons and for spying on your fellow citizens--all those illegal aliens and drug traffickers. Our wars--so vital for our security--require lots of resources, hence we also provide plenty of opportunity for those countries which have them and export to us. Really, you just have to see the glass is half-full!