Another howler from Ken Rogoff, the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University and one of the Very Serious People of the economics profession (rolling eyes).
Fatas says Rogoff "argues that the world economy is suffering from a debt hangover rather than deficient demand." I had to check that. When I read Fatas, I thought he might be misinterpreting Rogoff. He's not. He's right. Rogoff sees secular stagnation as one possibility, and crushing debt as "another possibility".
Rogoff sees the excessive debt explanation as an alternative to the deficient demand explanation.
That's just plain silly. Excessive debt is not an alternative to the "deficient demand" explanation. Excessive debt is the cause of deficient demand. First, the growing cost of growing debt consumes a growing portion of income. So demand atrophies gradually at first. Then, people suddenly come to think of their debt as excessive, and they suddenly cut their borrowing and spending. Demand falls suddenly -- economists call that a "shock" -- and we have "deficient demand".
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What has been happening in the UK under the Blair/Brown administration, is that when poor people attempted to try to save some money or to start a business, should the DWP find out about it, they were ans still are called in and investigated. They even end up in court and then have to pay back whatever they had in income support. They are fined for years to come and their so called debt is taken off their income support and even their pension. If they were not versed in how benefits work and they did not go on tax credits instead of income support the DWP does not take that into account.
Governments go on and on about how we need entrepreneurs but the poor are not allowed to save beyond £15,000. In the real world how does anyone even live on £15000? Should a wealthy person try to start a business they are lauded but the poor end up in court or prison. Look at all the people in jail for trying to grow and sell a commodity which brings in billions overall. Some of the true entrepreneurs are those who grow cannabis but look how they are treated, even if in the USA the tide is finally beginning to turn.
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