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Friday, May 15, 2015

Ramanan — Fiscal Conservatism, Weak International Trade Performance And Income Inequality Not Good For The U.S. Economy

The Levy Institute has a new Strategic Analysis publication titled Fiscal Austerity, Dollar Appreciation, And Maldistribution Will Derail The US Economy in which they identity three main structural characteristics of the economy of the United States that stand in the way of the recovery:

(1) the weak performance of net exports, (2) pervasive fiscal conservatism, and (3) high income inequality
They show that in their baseline scenario, if the projections of the Congressional Budget Office’s outlook hold, their model simulations imply that the private sector’s net lending would turn negative by the end of 2017 and hence the private sector would be in a financial deficit, which is not sustainable.....
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6 comments:

  1. Dan LynchMay 15, 2015 at 9:33 PM

    The current account deficit is a drag on demand. In a post-Keynesian universe, government would compensate by increasing deficit spending, but here on earth we end up with a slack economy that is dependent on private debt bubbles to keep it going.

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  2. Tom HickeyMay 15, 2015 at 10:01 PM

    Right. That is the MMT solution.

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  3. Matt FrankoMay 17, 2015 at 8:07 AM

    Dan the CAD is ex post accounting, it cannot be "a drag"...

    iow first there is low demand for domestically produced goods/services so US people are purchasing imported things (lower prices/higher perceived value) instead of domestically produced things and EX POST this is eventually accounted for in the NIA accounting system...

    rsp,

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  4. NeilWMay 17, 2015 at 8:56 AM

    It's very important to stop analysing economies on a purely geographic basis. We have a globalised world and when anybody uses your currency they join your currency area. Any entity can be in multiple currency zones at the same time.

    The 'current account' is an accounting illusion. It doesn't exist in reality any more than the 'current account' between you and your next door neighbour.

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  5. Dan LynchMay 17, 2015 at 9:11 AM

    Agree with @Neil that CAD is an artificial "accounting illusion."
    Most of the money involved in foreign trade does not flow in and out of government coffers, it flows in and out of private hands, yet we think of it as a national phenomenon.

    But a trade deficit is still a demand leakage. If Americans are purchasing Chinese stuff instead of American stuff, that reduces demand at home.

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  6. Tom HickeyMay 17, 2015 at 10:33 AM

    Right. The current account is an ex post record of trade flows. But since money is non-neutral, the balance of payments does play a financial role.

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