larry summers secular stagnation 2013
Greater saving has been driven by increases in inequality and in the share of income going to the wealthy, increases in uncertainty about the length of retirement and the availability of benefits, reductions in the ability to borrow (especially against housing), and a greater accumulation of assets by foreign central banks and sovereign wealth funds. It started in the Reagan years here. Reduced investment has been driven by slower growth in the labor force, the availability of cheaper capital goods, and tighter credit (with lending more highly regulated than before).Various studies have explored the impact of these factors and attempted to estimate the extent to which they have reduced neutral real interest rates. These two mega trends lead to lower wages and a reduced propensity to consume goods and services.
To date, the international community has joined Chinese financial officials in urging China’s political leadership to pursue financial liberalization. source: ... Stan -- a set of older ideas that went under the phrase "secular stagnation" -- are not profoundly important in understanding Japan's experience, and may not be without relevance to America's experience. At that point, desired levels of saving exceed desired levels of investment, leading to shortfalls in demand and stunted growth.This picture fits with much of what we have seen in recent years.
Raising demand is actually not that difficult, and it is much easier than raising the capacity to produce. “Normal market mechanisms” worked like this: a downturn happened, people were laid-off, eventually factories emptied, factories started hiring again, those employees started buying products again, and the downturn ended.Now the same thing occurs, but all of the hiring is done in Chinese, Indian, Vietnamese, and other foreign factories.
It is tragic, therefore, that in the United States today, federal infrastructure investment, net of depreciation, is running close to zero, and net government investment is lower than at any time in nearly six decades.It is true that an expansionary fiscal policy would increase deficits, and many worry that running larger deficits would place larger burdens on later generations, who will already face the challenges of an aging society. This idea confuses prediction with recommendation.
Indeed, to the extent that easy money works by accelerating investments and pulling forward demand, it will actually reduce neutral real rates later on.
Why would the downturn ever end in the West?To add to that, economic geniuses like Larry demand that hundreds of thousands of foreigners, mainly Indians, be imported to replace American workers under the guise of H-1B and other visa fictions, yet somehow claim this will create jobs even though historical evidence has proven that their premise is faulty.And China has used our money wisely, buying naval vessels and other weapons of war so it can keep its status quo.Larry and Tim “bankers need love too” Geithner gave away many hundreds of billions of dollars to their friends on Wall Street, money that could have been used to save middle class jobs or rebuild infrastructure.Historians will look back at the period between the start of Reagan’s terms and not that many years from now as the era in which the West voluntarily relinquished its freedom.Change “eventually factories emptied” to “eventually warehouses emptied.”Raise the import tariffs in America back to 20%.
“We beat you because we love you”. When the challenge is to accelerate, rather than brake, economies, more cooperation with domestic fiscal authorities and foreign counterparts is necessary.The core problem of secular stagnation is that the neutral real interest rate is too low. This is surely correct for the long run. April 10th, 2014
GDP today in the United States is more than 10 percent below what was predicted before the financial crisis.If secular stagnation concerns are relevant to our current economic situation, there are obviously profound policy implications that I will address in a subsequent column.
Next Post » Larry Summers is doubling down on his secular-stagnation hypothesis. There is, he argued, a strong possibility that the Wicksellian natural rate of interest is negative and that, at any non-negative interest rate, saving will exceed investment leading to stagnation (see Summers 2014a, 2014b, and Teulings and Baldwin 2014).
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