A global debt crisis, trade wars and a slowing China risk creating a new recession – even before the damage of the last one has been undone.
Since 2012, Chinese GDP has grown at an annual rate of 6-8 per cent – weaker than in the pre-crisis period (growth peaked at 14 per cent in 2007) – but still strong enough to support the growth of the Chinese middle class and stimulate the economies of its major trading partners. The US recovery has been slow by historic standards but growth in 2018 (2.9 per cent) was buoyed by Donald Trump’s tax cuts, which dramatically inflated corporate profits. Japan’s growth has been low but stable – unsurprising in view of its rapidly falling population (which declined by 449,000 in 2018). Only the eurozone has continued to struggle, growing by just 1.8 per cent in 2018.
But all is not as it seems. The US recovery has been highly unstable and unequally distributed, with loose monetary policy (interest rates are currently 2 to 2.25 per cent) required to sustain unremarkable growth rates, which have varied by almost five percentage points between the best- and worst-performing states. Real average American wages in 2018 had the same purchasing power as 40 years ago. Meanwhile, corporate debt has reached a record level (45 per cent of GDP) and stock markets still appear overvalued.
China’s growth has been driven almost entirely by its 2009 $586bn stimulus programme – one of the largest in economic history, which included public investment in high speed rail, airports and road upgrades – which has also underpinned growth in economies dependent upon Chinese demand for their exports (such as Germany). Brazil, Russia and South Africa – once heralded as part of the insurgent “Brics” economies – are all growing at annual rates of 1.5 per cent or less, according to recent figures.
Blakeley trotts out the tired nonsense lack of so called "fiscal space". She says " national debt levels have significantly risen, reducing the space for fiscal stimulus."
ReplyDeleteShe needs to get to grips with Mosler's law: "There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it."
The "fiscal space" idea is BS, as I have explained on my blog and as Bill Mitchell has explained.
"There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it."
ReplyDeleteDisagree. Taxes are already low on those who'd like to consume so there is a "zero lower bound" problem with cutting taxes.
Otoh, there's no upper limit on spending and no lack of needs for those whom the banks have systematically stolen from.
“Blakeley trots out the tired nonsense lack of so called ‘fiscal space.” She says "national debt levels have significantly risen, reducing the space for fiscal stimulus."
ReplyDeleteI saw that. Such nonsense is what got Blakely a job at the Institute for Public Policy Research in London. The IPPR is a gatekeeper propaganda mill that calls itself “leftist” in order to get away with promoting austerity and neoliberalism, just like the New Statesman rag itself.
There was a time when the New Statesman actually was leftist, but like the Guardian it changed.
“She needs to get to grips with Mosler's law: ‘There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it’.”
Like many MMT proponents, Mosler pretends that banks don’t exist. For example, the more money the US government puts into the economy, the more money will be sucked up by the banks as housing prices continue to skyrocket.
As for the so-called “recovery,” Michael Hudson says it is in the financial economy, not the real economy. As the rich continue to get richer, average people continue to get poorer and more indebted.
In many cities, homelessness continues to explode. Some homeless people live in tents. Others live in their cars, and must continually stay on the move, since it is illegal to live in your car (but it is not illegal to live on the sidewalk).
Like many MMT proponents, Mosler pretends that banks don’t exist. Konrad
ReplyDeleteActually, Warren Mosler would greatly increase bank privileges:
http://moslereconomics.com/2009/09/16/proposals-for-the-banking-system-treasury-fed-and-fdic-draft/
In many cities, homelessness continues to explode. Konrad
ReplyDeleteNothing new:
Woe to those who add house to house and join field to field, until there is no more room, so that you have to live alone in the midst of the land!
In my ears the Lord of hosts has sworn, “Surely, many houses shall become desolate, even great and fine ones, without occupants. Isaiah 5:8-9
Andrew, So you're saying that if taxes on those on average incomes were cut they wouldn't spend their new found wealth? I'm baffled. However, dollar for dollar, public spending increases are probably more effective than tax cuts. But does not invalidate Mosler's law. Plus a democratically elected right wing government has a right to cut taxes if that was included in its election manifesto.
ReplyDelete