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Businesses United States

Economists Got the Decade All Wrong. They're Trying To Figure Out Why. (wsj.com) 322

The U.S. has enjoyed its longest economic expansion on record without triggering inflation as interest rates remain historically low [Editor's note: the link may be paywalled]. From a report: [...] So in 2013 Larry Summers, a former top adviser to Presidents Bill Clinton and Barack Obama and now an economist at Harvard University, advanced an alternative explanation: "secular stagnation." He borrowed the phrase from an earlier Harvard economist, Alvin Hansen who used it in 1938 to describe the Great Depression's persistently weak growth and high unemployment. Mr. Hansen tied it to weak investment due to slow population growth: Businesses had less need to invest when there were fewer new workers and customers and when aging households bought fewer big-ticket products like houses. Slow population growth is once again weighing on growth and interest rates, Mr. Summers noted, and he added several other factors: the fastest-growing businesses, such as social-media platforms, invest little of their rich profits. Higher inequality meant more income flows to the high-saving, low-spending rich.

Though initially skeptical of Mr. Summers's thesis, many economists have since warmed to it, at least for other parts of the world, if not the U.S. In some countries like Germany a persistent excess of savings manifests itself as a trade surplus which flows into other countries' bonds, holding down interest rates around the world. Secular stagnation has several profound implications. First, with interest rates closer to zero, central banks are less able to combat future recessions. Second, a structural shortage of private borrowing means governments can run big deficits without pushing up interest rates. Indeed, given central banks' lack of ammunition, governments should run deficits, or the economy will stagnate. Reducing entitlements such as future Social Security benefits in the name of fiscal prudence may worsen the problem by encouraging households to save more.

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Economists Got the Decade All Wrong. They're Trying To Figure Out Why.

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  • by KixWooder ( 5232441 ) on Monday December 16, 2019 @03:57PM (#59525772)
    Economic expansion without, not just a deficit reduction, but a national debt reduction, is false growth. It's robbing Peter to pay Paul.
    • Re: (Score:3, Interesting)

      by alvinrod ( 889928 )
      That's what happens when the people find out that they can just vote themselves bread and circuses. You can't really specifically blame Democrats or Republicans because they both like to deficit spend, just mainly on a few different things outside of the money pits that both sides dump billions into.
      • by sweepkick ( 531861 ) on Monday December 16, 2019 @04:34PM (#59525936)

        That's what happens when the people find out that they can just vote themselves bread and circuses. You can't really specifically blame Democrats or Republicans because they both like to deficit spend, just mainly on a few different things outside of the money pits that both sides dump billions into.

        At least Democrats are more apt to raise taxes to offset spending. Kix is absolutely on-target though - cutting taxes and running massive deficits to offset them is pure madness, and I believe we will learn a very, very tough lesson on why it is considered as such.

        • Re: (Score:3, Insightful)

          by Shotgun ( 30919 )

          Even when cutting those taxes results in increased revenue?
          You do know that President Trumps tax-cuts resulted in record revenue for the feds, don't you?

          • He does not. Orange man bad and all that. He thinks Vox is a news source.
          • Re: (Score:2, Insightful)

            So why is it all over the news that the tax revenue has fallen sharply after the tax cuts? What are you basing your statement on?

            • Re: (Score:2, Informative)

              by Shotgun ( 30919 )

              here is a good starting point [thebalance.com]

              Politifact also had a good article. Being liberal, they downplayed Trump's success. But, the point the left is making is that Trump destroyed the economy. If revenue is up, if only by their 1% estimation, it is still record revenue.

              • Quote from the article you linked:

                "Revenues would be much higher without the Trump tax plan"

                Not sure what you're missing, but the quote says pretty directly that if taxes were not changed revenues would be higher than they are with the Trump tax plan. Therefore, the Trump tax plan cost the U.S. revenue and raised the deficit (est. 1.1 Trillion in 2020). Completely irresponsible in my book.

            • Because tax-to-GDP ratio is down.

              Revenue alone isn't a terribly useful metric. All it's good for is when you want to lie with statistics, and the tax-to-GDP is down.

              Think of it this way, if you make $100 more per month, are you actually making more money? Depends on what's going on with the rest of your "economy". If your expenses went up by $200/mo, that $100/mo more doesn't make you net positive.

          • by memnock ( 466995 )

            An increase for a year. What's the bigger picture, as in longer term outcomes regarding the budget? So far everything points to an even bigger deficit down the road. And the tax cuts still didn't help the average person. [cnbc.com] What's the saying about penny-wise and pound-foolish?

        • At least Democrats are more apt to raise taxes to offset spending.

          Problem is, they then immediately increase spending to offset higher taxes. Their presidential candidates are falling over each other to promise free stuff.

        • At least Democrats are more apt to raise taxes to offset spending.

          AOC and her followers think we should just print money [nymag.com]. The current levels of unemployment and inflation are unprecedented. We are in uncharted territory. So maybe she is right.

          cutting taxes and running massive deficits to offset them is pure madness

          When real interest rates are at zero, it may not be so crazy.

    • by Darinbob ( 1142669 ) on Monday December 16, 2019 @04:31PM (#59525922)

      The economy is claimed to be growing, but the economy is not all that good by many factors. The problem is that the government is not looking at all the factors since it always wants things to look better than they (no matter which party is in charge). For instance, wages seem flat currently, though there were some parts in the 2010's that were better. Under-employment is still a thing, homelessness is up, discount stores are growing (the "dollar" store), outsourcing grew a lot, the haves-vs-have-nots divide is growing, and so forth. For some sectors, things are fine (ie, highly skilled tech workers with experience), but that doesn't necessarily reflect the economy for the average person.

      This reminds me of the mid-90s when I was stuck for a long time trying to get a job, all my friends I contacted said their company was tightening the belt, and everyone else I knew looking for a job was having a tough time. And yet all the news reports were saying how amazing the economy was and how unemployment was down.

      • by gtall ( 79522 ) on Monday December 16, 2019 @04:43PM (#59525986)

        The NYT (or maybe it was the WashPost) had an article or op-ed on how the GDP number misstates the health of the economy. Put quickly, the people and companies at the top are doing very, very well. The people below the top are not getting the benefits of that GDP. So beware government spokesbots honking on about the GDP without an analysis of where the money is going.

      • When in the 9-s was that? Early 90s was a bad recession. No one was saying it was great. By oh hmm say 98-99 things were a lot better but still not great. After that we're not in the 90s so not sure when you're talking about. 90s mostly sucked.
    • by gtall ( 79522 )

      Bingo!! And now we're pumping $1 Trillion dollars of deficit spending every year into the economy. If the economy wasn't on a sugar high from that, then there'd be problem. And as soon as the U.S. can no longer keep up with interest payments on the total debt, the game of musical chairs stops. At that point, all the Congress People who voted for this disaster will mysteriously retire to spend more time with their family.

      • The math should be easy. When can the US not keep up with interest payments? About what year is that?
        • It's not so easy to tell when, because it all depends on people's willingness to continue financing the US's debt. The government today has no problem selling all those T-bills, even with the ridiculously low interest rates, so it can just pay off today's debt's with tomorrow's money. And if they can pay tomorrow's debt with the day after's money, and the day after's with the next day's, etc. it will continue on. Essentially as long as the people buying the IOU's believe that the government can pay them

  • by spun ( 1352 ) <loverevolutionary&yahoo,com> on Monday December 16, 2019 @04:00PM (#59525786) Journal

    Sure, the economy has grown but most of that is not going into the pockets of regular Americans. It is going to pay for a fifth yacht and a seventh vacation home, which weren't bought here in America. If it were just lower population growth, then why would the economy grow at all? No, the economy is growing but inflation isn't, because regular Americans are poorer than ever.

    • Re: (Score:3, Informative)

      by alvinrod ( 889928 )

      No, the economy is growing but inflation isn't, because regular Americans are poorer than ever.

      This is just false and it's a bad talking point. Here's the real median household income [stlouisfed.org], which is at the highest point that it's ever been. In previous posts where I've addressed this I looked into other measures and have found that the average house size has increased along with purchases of consumer goods like televisions, which are not only more plentiful but considerably better than what you could buy at twice the cost only two decades prior. It might not always appear that Americans are better off, bu

      • by Quirkz ( 1206400 )

        This is just false and it's a bad talking point. Here's the real median household income [stlouisfed.org], which is at the highest point that it's ever been.

        Looking at that chart, we've had about 3 years of "highest ever" wages, up a total of 2% over a peak in 1999, with most of the intervening years flat or below that.

        I agree it refutes the claim that things are worse than ever (god, some people always want everything to be at its most terrible, and it's genuinely annoying) but that's hardly unbelievable sunshine and roses.

    • Real wages are up [factcheck.org], and the data shows it's outpacing inflation [frbatlanta.org]. Real median income is up [stlouisfed.org] as well. I guess you're all like Alexandria Ocasio-Cortez who famously stated that unemployment is low because everyone is working two jobs [factcheck.org]...
    • I do not agree with this. I'm not rich but I'm not poor either. I'm the "American" you say is poorer. I find my wealth growing, not shrinking. I've taken opportunities in my life starting a side business. It make money. It could turn into something big who knows. But i will be one person who will not complain about getting poorer. I believe, on average, people have all the opportunities to make money and can take it whenever they want to. I also believe, on average, the people who are waiting for we

  • by timeOday ( 582209 ) on Monday December 16, 2019 @04:07PM (#59525826)
    After the economy imploded in the Great Recession, it came back with more or less the same people in charge and the same people holding all the wealth. The Government(s) demonstrated the highest imperative was that nothing really change. So all the incentives are to go back to the well again, even moreso. But when we do finally exceed the capacity of the government to serve as a backstop - a lender of last resort - it's gonna be bad. Real bad.
  • Savings (Score:5, Interesting)

    by solardesalination ( 6463838 ) on Monday December 16, 2019 @04:10PM (#59525834)
    The US savings average household savings rate is 8% of income. China is around 30%. Singapore is closer to 50%. (Source: Investopedia) I think most personal finance people will tell you, you should be saving somewhere between 10 and 25 percent of your paycheque. I agree with Larry Summer's argument that if you cut social security, you'll increase people trying to save more, which is bad for the economy, but people already aren't saving enough. The problem here is that you have dead capital in the hands of ultra size corporations and billionaires that don't do anything with it. Either impose a wealth cap of half a billion dollars and tax the rest of it 100%, or force the billionaires out of negative interest bonds and blue chip and into small and microcap equities. I know of 10 cleantech companies that are penny stocks with really good products but a lack of exposure/quality management to raise capital. Yeah you could say, if they can't compete they shouldn't be in business. True, but some of them never got a fair shake because all the money is in Bill Gates golden toilet.
    • by Shotgun ( 30919 )

      If I had a billion dollars and sat on it, doing nothing with it, I'd be too much of an idiot to have a billion dollars.

      Those billionairs that seem to bother you so much, don't have a bank account with $1B in it. They have stocks and other securities that would add up to $1B. That is why you see Jeff Bezos being the richest man in the world one day, and Jeff Zuckerberg the next, and then he gets knocked down by Bill Gates again. Their "worth" is not what is in their bank account. It is what the stocks, w

    • Someone is either jealous or doesn't know rich people. For example, Bill Gates is the primary investor in many venture funds, including a $1 billion clean energy fund [qz.com]. He doesn't sit on his wealth, he invests it. And maybe those penny-stock cleantech companies aren't getting funded because either their tech is bad (or is already out, and they have nothing new to add) or the management is so shaky no one would trust them with a buck.

      Rich folks - people who actually made the money, not inherited it - tend

    • Comment removed based on user account deletion
  • I'm no economist, but we should probably get used to/deal with this "lack of population growth" now, going forward, versus burdening future economies with unimaginable debt. And having more and more people around is simply unsustainable (and mostly unnecessary).
    • having more and more people around is simply unsustainable

      Don't accept this as an unquestioned fact. The Malthusian idea that we're approaching a hard population limit completely ignores how clever and technologically adaptable we are. We've stomped this limit repeatedly, much to the consternation of those that expound it.

      • by kackle ( 910159 )
        After having lived a half-century, I haven't seen where "just more people" benefits anything/anyone. Though I've seen plenty of their harm...
    • But that means dialing back the entitlements (Social Security, Medicare/Medicaid, etc.) which eat up 100% of tax receipts for the Federal Government (yes, debt and entitlements eat all the revenue - defense, energy, transportation, law enforcement, science, everything else runs on borrowed money). And since we've established a permanent political class, they will never cut their own throats and get rid of the entitlements.

      What is really needed is a Constitutional amendment limiting Senators to no more than

  • by rsilvergun ( 571051 ) on Monday December 16, 2019 @04:13PM (#59525854)
    in your inflation numbers. Blam! Low inflation. Then you create a phony-baloney "Basket of Goods" that you can add and remove things from to cook your numbers and Blam! No inflation.

    Meanwhile in the real world my pay goes up about 2% a year while my expenses go up 5%, leading to a net pay cut of 3% every year. But hey, as long as the stock market goes up, right?
  • by Cyberax ( 705495 ) on Monday December 16, 2019 @04:13PM (#59525856)
    Economists got the decade exactly right. Paul Krugman basically predicted the current situation back in 2008 - no inflation coupled with slow growth, even despite huge increase in monetary base. It was predictable as a result of the old IS-LM model.

    The IS-LM model also indicates the way to fix the stagflation - a massive public spending program (preferably in infrastructure), funded by deficit spending. Yet the US had been essentially paralyzed for 8 year by the Republican party's madness (remember the government shutdown because of the deficit?). Europe had its own brand of austerity madness, mostly pushed by Germany.
    • Paul Krugman successfully predicted something? Did you take the clock in for repairs?
      • by Cyberax ( 705495 )
        Paul Krugman is actually the best economic forecaster so far. You might want to get out of your bubble, since you're basically competing with monkeys there. You are surely smarter than these monkeys, but you are dumber than even the average Democratic voter.
    • Slow growth? Wages are bumping 3-4% annually. Real median income is climbing likewise. Unemployment has plummeted to about the lowest possible. That's slow growth? Really? Remember, Krugman also said that we'd have an immediate, world-wide recession if President Trump was elected - and that's not happened yet. I think you can safely take most things that Krugman states and ignore them...
  • "The only function of economic forecasting is to make astrology look respectable"

    • "The only function of economic forecasting is to make astrology look respectable"

      This. Economics as we know it is basically just a step or two beyond voodoo. It's a so-called Social Science. And socials sciences aren't real science.

  • by hdyoung ( 5182939 ) on Monday December 16, 2019 @04:30PM (#59525906)
    The economy has been better than expected for the last 3 years because of the Trump bump, which is very, very real. However, before you down-mod me, please read on. The reason for this is non-trivial.

    When there's a democratic president in office, conservatives feel bad about life and invest less. Conservative-owned businesses batten down the hatches, expecting bad things. I've seen this happen first hand. When Obama was president, I knew multiple conservatives who pulled entire investment accounts out of the stock market and put them in money markets (or even gold) because they were sure that Obama was a nigerian muslim communist hell-bent on destroying everything great about America. These were BIG sums of money that went underutilized.

    Conversely, when a republican is in office, conservatives feel better about life and pump those dollars back in, improving the health of the economy. Liberals, however, don't react the same way. When Trump took office, liberal investors felt bad about life, but they had the education and sophistication to understand that he's not going to destroy the country. They understand that the president doesn't really drive economics. So they grumble, but keep their investments in place.

    To summarize: when theres a republican president, liberal and conservative investors both pump the economy. When there's a democratic president, liberal investors stay active but conservatives pull back. In essence, the economy does better under republican presidents because conservative voters are (as a group, statistically speaking) unsophisticated.
    • The economy has been better than expected for the last 3 years because of the Trump bump, which is very, very real.

      Not from what I've seeing. Our previously steady business is down for the first time ever. Prices for everything has gone up. Wages haven't.
    • by MobyDisk ( 75490 )

      In essence, the economy does better under republican presidents because conservative voters are (as a group, statistically speaking) unsophisticated.

      Ohhh no, someone is starting the old "The economy does better under the control of my party" thing. *rolls eyes* If you *really* want to debate the point, first check out this most excellent lesson on statistics. [fivethirtyeight.com]

    • In essence, the economy does better under republican presidents because conservative voters are (as a group, statistically speaking) unsophisticated.

      Unfortunately for your theory, the economy has grown more under Democratic presidents since the end of WWII. Even if you drop the really awful economies from the analysis, like W's second term and Nixon's recession.

  • It's possible that traditional economic indicators like unemployment and inflation matter less now. Low unemployment is fine, but when you consider that the vast majority of jobs are low-paying and/or unstable gig economy jobs, does the indicator still capture the same things? When I was little (40 years ago) unemployment seems like it was a better indicator of stability. Most people had steady jobs doing paper pushing in large companies or working at factories in manufacturing. When companies laid off, it

  • by Dallas May ( 4891515 ) on Monday December 16, 2019 @04:40PM (#59525974)

    The answer is amazingly stupidly simple. The Upper-middle class babyboomers retired this decade and have been doing nothing but spending their wealth.

    It's not complicated.

    • by HiThere ( 15173 )

      Almost.

      The reason is that most of the population has not seen a rise in income (above inflation level), so if prices are raised, people stop buying.

      The exceptions test the rule. E.g., if housing prices rise, then this predicts more homeless.

  • Alvin Hansen who used it in 1938 to describe the Great Depression's persistently weak growth and high unemployment. Mr. Hansen tied it to weak investment due to slow population growth

    More idiotic analysis severed from politics. Scare the hell out of investors with threats of tax increases, and they retract. They throw it into their analysis of possible return on investment, and if you halve the profit, you are shocked, shocked some say to hell with it.

    Fast forward to out of control spending and adding a hundred billion in regulatory burden each year, proudly, like some bizaaro badge of honor, and are shocked, shocked at the same thing.

    Here you have a president, for better or for worse

    • Here you have a president, for better or for worse, who can be trusted to minimize that.

      Highest national deficit ever. Highest national debt ever. Massive handouts to farmers. Why would you suggest that this president "can be trusted to minimize" spending?
  • Headline should read (Score:5, Interesting)

    by melted ( 227442 ) on Monday December 16, 2019 @05:07PM (#59526080) Homepage

    "Economists have figured out their science is not actually science". It's not a coincidence that the Nobel Prize for economics is not an official Nobel Prize, and that Paul Krugman (a laureate of the aforementioned prize) compares unfavorably to a random number generator in terms of his predictive capacity.

  • by account_deleted ( 4530225 ) on Monday December 16, 2019 @05:12PM (#59526104)
    Comment removed based on user account deletion
  • I didn't think /. play those paywall games?
  • by urusan ( 1755332 ) on Monday December 16, 2019 @06:49PM (#59526472)

    If this economic theory is correct, then a more rational solution than running massive deficits would be to institute a UBI.

    First, with interest rates closer to zero, central banks are less able to combat future recessions.

    Translation: The mega rich are getting too rich for the government/central banks to be able to support using traditional methods which have been tapped out, hence we have an unsustainable situation and can't just go on with the status quo.

    Second, a structural shortage of private borrowing means governments can run big deficits without pushing up interest rates.

    Translation: For whatever reason, currently the ultra-concentrated wealth isn't able to get out to borrowers that can use the money to produce real value, so the government can take money from the pool of ultra-concentrated wealth with relatively little consequence. It can realistically do this by pinky promising to pay it back with interest, without really needing to have a solid plan for actually doing so, since investors are so desperate.

    Indeed, given central banks' lack of ammunition, governments should run deficits, or the economy will stagnate.

    Translation: According to this theory, the government should totally do this, because we can make more money than we otherwise would from a variety of projects.

    Reducing entitlements such as future Social Security benefits in the name of fiscal prudence may worsen the problem by encouraging households to save more.

    Translation: Even simply giving people money is more useful than how the money is currently being invested. By giving low/middle income people money which is then spent on useful things, things start moving again. Spending from below increases how much money can be made through useful goods and services, which increases private borrowing for expanding the production of those things to the benefit of investors, and it also brings in tax dollars for the government. Thus far more value is created, benefiting pretty much everyone.

    Can the government actually pay back its promises if we do this? Who knows!

    One thing is for sure though, either way money will be diluted, but redistributing the money deliberately would likely lead to a healthier economy and more control over redistribution. If we stay the course, then investors will eventually either be facing negative interest rates on their investments or a crash that drastically devalues their holdings. If we redistribute via deficit spending and can't pay back our promises, then when the government defaults the investors still in the system would lose their investments, effectively having had them redistributed to the people and programs they were spent on. If we redistribute via deficit spending and the government manages to pay it back, then it's very likely there was still a redistribution effect through some more subtle mechanism, most likely either inflation suddenly returning to wipe out gains or more optimistically the economy growing fast enough to provide the tax income to pay for the debts.

    So, instead of a potentially chaotic redistribution via deficit spending/sudden drastic crashes, why not just be honest with ourselves about the need for a broad redistribution to inject money into areas where it is actually needed? The super wealthy will benefit from this too, with their remaining investments going from slow growing and vulnerable, to fast growing and economically crucial, as well as the environment they are operating in being far more full of real, meaningful opportunities.

    A UBI would achieve the same basic goals as deficit spending on entitlements, but without the borderline fraud and crazy brinkmanship of uncontrolled deficit spending, and with a better redistribution (not just old people would get the money, giving younger people who can spend the money more effectively an opportunity to do so).

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