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January 03, 2014 | Economist's View
Here's the Jared Bernstein response to John Taylor that Roger Farmer is referring to:Taylor v. Summers on Secular Stagnation: ... In a recent speech I’ve featured here in numerous posts, Larry Summers raised the possibility that the economy is growing below its potential, with all the ancillary problems that engenders (e.g., weak job and income growth), and not just in recession, but in recovery. Stagnation is by definition expected in recession, but not in an expansion...Taylor argues, however, that secular stagnation is “hokem.” His argument rest on two points, both of which seem obviously wrong.First, he claims that the current recovery has been weak is not due to any underlying problems in the private sector or lousy fiscal policy, but due to “policy uncertainty, increased regulation, including through the Dodd Frank and Affordable Care Act.” But the recovery began in the second half of 2009, well before either of those measures took effect. And, in fact, since they’ve done so, if anything, growth and jobs have accelerated. Financial markets have done particularly well...Taylor’s antipathy toward fiscal stimulus leads him to completely omit the fact of austerity in the form of fiscal drag as a factor in the weak recovery. ...His second argument is that if secular stagnation were a real problem, we would have seen it in the 2000s expansion, yet instead we saw “boom-like conditions, especially in residential investment.” ...Yes, there was a lot—too much—residential investment, but employment growth was terribly weak...,the share of the population employed actually declined. Real GDP grew almost a point more slowly per year over the 2000s business cycle relative to the prior two cycles. Business investment grew less than half as fast in the 2000s than it did in the 1990s. In fact, after rising pretty steeply in the 1990s, CBO’s estimate of potential GDP fell sharply in the 2000s..., a serious cost of the problem Summers is raising and Taylor is wrongly debunking.It’s also worth noting that middle-class incomes and poverty rates did much better in the 1990s, thanks to full employment conditions in the latter half of that cycle, than in the 2000s, when slack labor markets led to a flattening trend in real median income and increasing poverty rates.I doubt any of this will convince Taylor and others who simply want to go after the ACA, the Fed, stimulus measures, et al. But those of us interested in blazing the path back to full employment should recognize these arguments as politically motivated distractions. ...
This post from Brad DeLong on the same topic is also worthwhile
If one has been reading Taylor's blog - ECONOMICS ONE - none of his latest partisan garbage in this oped would have come as a surprise. In the olden days - we would have to turn to Lawrence Kudlow and those Jerry Bowyer Fuzzcharts for such insanity. I wonder if Stanford is proud of its most famous macroeconomist. Cough, cough.
The thing that holds back businesses from deploying their stash of cash, is not “policy uncertainty” or “increased regulation”. It is lack of demand.
If the demand is there then the product/service will be produced. When demand is not there then the cash will sit idle or be used non-productively for things like stock buybacks or takeover of competitors. Any individual business owner who fail to meet demand (because of policy uncertainty or regulation) will simply give up market share to those of his/her competitors that chose not to be held back by those things.
DeDude -> Matt Young:
I am actually not talking about GDP. The issue is why do businesses not hire more people. The explanation that right wing fools and smart business people love to give is that it's because of regulations and policies that they don't like. However, as pointed out over on "calculated risk" they always complain about regulations and there is no correlation between their complaining (or not) and their actual hire of new employees. The only thing that determine whether a business will hire more people is whether the demand for its products/services is in excess of what can be delivered by its current workforce. And they will respond to such demand regardless of cumbersome regulations - or they will lose market share to competitors that are more than happy to fill the demand.
Fred C. Dobbs:
(Found out on the web.)
Definition of the term secular stagnation theory is presented. It refers to the protracted economic depression characterized by a falling population growth, low aggregate demand and a tendency to save rather than invest.
Dictionary of Theories;2002, p478
I don't think the right word for Taylor's erroneous claims as chiefly "political". It's moral prejudice. The absolute belief in totally unregulated markets is based on the belief that
1. The wealthy are more virtuous than the poor.
2. Only the strong should survive (see Abba's song "The winnner takes it all").
So it goes from a.Moral Prejudice to b. Political ideology to c. Economic chicanery.
Moral prejudices are the most deeply rooted in human beings because they don't only dictate how the world is, but how it should be.
pgl -> David...
Aren't your comments better directed towards Greg Mankiw? Oh wait - they are both toadies for Mitt Romney. Sorry about my question!
Taylor isn't right or wrong. Taylor is simply irrelevant to the largest social ill of 2014- Unemployment.
If one of the basic assumptions of your model is "Assume Full Employment" then employment doesn't become a goal but a constant.
Under the Assumption of Full Employment, is secular stagnation even possible?
Taylor's model does not even look at Unemployment, and reducing unemployment is not his priority.
If as a policy maker, your goal is to reduce unemployment as quickly as possible, you should find another model that addresses unemployment directly. Once unemployment is fixed, other models may be more useful as new problems pop up.
anne -> bakho...
November 30, 2008
Keep Your Distance
By WILLIAM E. LEUCHTENBURG
Chapel Hill, N.C.
On Nov. 22, Hoover welcomed Roosevelt to the White House. Throughout the meeting, he treated his successor as though he were a thickheaded schoolboy who needed drilling on intransitive verbs. He sought to bully the president-elect into endorsing the administration's policies at home and abroad, especially sustaining the gold standard at whatever cost. Alert to Hoover's intent, Roosevelt smiled, nodded, smiled again, but made no commitment. A frustrated Hoover later vowed, "I'll have my way with Roosevelt yet."
Hoover returned to the attack in February. He sent the president-elect a hectoring 10-page handwritten letter that misspelled Roosevelt's name (as "Roosvelt"). As a consequence of the flight of gold and runs on banks, Hoover wrote, there was "steadily degenerating confidence in the future." His wise policies, he claimed, had brought an upturn in the summer of 1932. Since then, though, he said, there had been a sharp decline because the country was unnerved by Roosevelt's election, for it feared that the new president would embark on radical experiments. Hoover concluded by asking Roosevelt to restore confidence by stating publicly that there would be "no tampering" with the currency and that "the budget will be unquestionably balanced, even if further taxation is necessary."
Three days after writing this letter, Hoover told an archconservative senator that "if these declarations be made by the president-elect, he will have ratified the whole major program of the Republican administration; that is, it means the abandonment of 90 percent of the so-called new deal." To another Republican senator, he spelled out what he demanded that his successor renounce: aid to homeowners burdened with mortgages, public works projects and plans for a Tennessee Valley Authority. He also wanted Roosevelt to raise tariff barriers and impose a national sales tax.
Roosevelt, who regarded the letter as "cheeky," let days go by without replying, fibbing that his response had miscarried. He would not let himself be trammeled by being identified with an unpopular dying administration, so he refused to issue any statement. He would not permit Hoover to rob him of the fruits of victory. On March 4, unfettered, he announced to the nation a new beginning....
William E. Leuchtenburg is the William Rand Kenan, Jr. professor emeritus at the University of North Carolina at Chapel Hill.
I wonder if Tyler Cowen, James Hamilton, and Steve Williamson will take John Taylor to task for saying that Larry Summers and Ben Bernanke are just putting out a bunch of hokum to protect the Obama administration from its policy errors? No, I don't think so, civility and treating those who disagree with you with respect and deference is only something economists with liberal political leanings, who kind of care what happens to the rest of the American people, and not just the 1%, owe to their conservative, "scientific," betters.
It should not be forgotten that Professor Taylor was the Deputy Undersecretary of Treasury for Economics and Financial Issues from 2001-2004. That economic growth was anemic during this time is well documented.
Has he ever explained his policy errors? As to hokum, I do acknowledge that Professor Taylor has a lot of experience peddling that for his political masters.
How can Mark Thoma, Noah Smith, or Brue Bartlett have an honest argument with the likes of John Taylor. I hope he finds his bubble comfortable in side the right wing machine. I am sure he finds it lucrative.
P.S. Again, the evidence is that economic growth is picking up, just as both Dodd-Frank and the Affordable Care Act are coming into full effect. Correlation or causation? Are more likely just co-incidence?
This is an interesting topic which sadly attracted very few comments.
I think there are two issues not covered in comments:
- That is politics, not economics and, clearly, as for Taylor, it comes down to the usual question: "are Republicans more stupid or more evil" (see Robert Waldmann comment to the post from Brad DeLong ).
- The level of debt and the price of energy are two important variables that should probably be taken into account in any discussion of secular stagnation.
As for Taylor personal legacy, I would suggest that the underlying assumption that there is an exogenous NIARU (non-inflation-accelerating rate of unemployment) imposing an unavoidable constraint on macroeconomic possibilities is wrong on both historical and analytical grounds. From a historical standpoint, a NIARU, if it exists at all, must be regarded as highly variable over time and place.
To me it smells with the desire to enlist the fear of inflation to justify the maintenance of a "reserve army of the unemployed" in the society (which is a Marxist term, but probably is applicable here). In a way high level of unemployment is a precondition to the fast redistribution of wealth that we observed under the current neoliberal regime.
Which is another way to say that Taylor is a stooge of financial oligarchy. A Trojan horse which plays the role of an academic economist.
Oct 06, 2015 | Zero Hedge
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
When the machinery of governance is ruled by the highest bidders, democracy is dead.
Last week I described the sources of America's America's terminal political dysfunction. The engine of this terminal dysfunction is crony capitalism, the incestuous and oh-so-profitable marriage of the Central State and monied Elites.Gordon T. Long and I continue our discussion of the perverse incentives and consequences of crony capitalism in a 25-minute video program.
Gordon argues that America's Crony Capitalism closely resembles the Roman Tribute System, an arrangement that skims wealth and concentrates it at the top of the power pyramid.
Vast financial crimes are met with fines. Guilty parties do not go to jail but rather the corporation pays a fine. Billion-dollar crimes are assessed million-dollar fines-- a percentage that closely mirrors a Tribute System. The government makes money through enforcement but not prevention. Corporations make illicit fortunes with the confidence that the government will settle for a small slice of the wealth stripmined from the people.
The fines for financial skimming operations act as a form of tribute to the Central State: the State and its corrupt elected officials and regulators turn a blind eye to the pillage of the citizenry via financialization schemes, and then skim a tribute via fines and campaign contributions.
Everybody in the inner circle wins: the finance perps collect their millions in bonuses, the legislators collect their millions in campaign contributions, and the regulators (who managed to do nothing in the way of prevention) get to declare a toothless victory in announcing wrist-slap fines.I have covered this dynamic many times:
- The Mafia State of Mind (February 6, 2014)
- How White Collar Crime Became the "Business Model" of Corporate/State America (July 17, 2012)
This cozy arrangement might seem benign, but it's actually deadly to democracy and the real economy. Let's call crony capitalism what it really is: Kryptonite to democracy and the real economy.
Concentrated wealth and State power form a self-reinforcing feedback loop that destroys democracy. The more profitable buying influence and the revolving door between corporations and regulators becomes, the more money the corporations have to spend on lobbying, which serves to further protect their profits. The more money political toadies collect, the more beholden they are to entrenched interests.
This feedback loop rewards crony capitalism and limits classical capitalism’s key features: transparent markets and competition. An economy dominated by crony capitalism stagnates as competition is suppressed and government enriches those who are “more equal than others” (to borrow a phrase from Orwell).
Money that might have once been invested in research and development is now devoted to bribing politicos, lawsuits defending corporate turf and wrist-slap fines/Tribute to the State that enables and protects crony skimming operations.
When the machinery of governance is ruled by the highest bidders, democracy is dead.
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