Home > Uncategorized > Links. Secular stagnation is not a supply side phenomenon.

Links. Secular stagnation is not a supply side phenomenon.

  1. More and more economists are writing about ‘secular stagnation’: a ‘lack of demand’ induced situation of lacklustre growth. think of high private debts, high inequality, high unemployment and an overgrown financial sector and a house price bust.
  2. In the meanwhile, a hospital in Rotterdam introduces a robot-bed-washer. And surgeons are experimenting with using 3-D printing during in-womb surgery on unborn children. Which is good: when robots wash bed, nurses have more time to wash patients (unless we embrace neoliberal ideology and only look at caring for people from a cost perspective).
  3. Despite such technological progress, economic growth in the Eurozone is, despite low interest rates, low oil prices and an increase in total wages, measly.
  4. The interesting Eurozone countries are, when it comes to the latest data on economic growth, Spain (robust growth), Greece (-1,8% decrease of nominal GDP – which is much better than expected) and Ireland (data on job growth and economic growth do not seem to match). And Germany, which still increasingly relies on foreign demand,  Which is dangerous, as the growth impetus of the increase of foreign demand (measured as an increase in net exports not caused by declining imports) will eventually come to a halt –  which however won’t stop the growing imbalances caused by an extreme surplus on the current account. Growth of total nominal wages in Germany must be close t 4% which, once upon a time, will lead to an expenditure boom. I will return to Ireland, but the Irish data are quite puzzling: no credit growth (to the contrary) – but a 100% increase of investment in some sectors (Q2). It seems as if some large companies are transferring intellectual ownership to Ireland.
  5. I was clearly wrong about Greece. Closing the banks did not tank the economy: money kept flowing. However, at this moment renewed austerity (higher VAT rates, lower pensions and the like) is starting to bite. And this is tanking the economy: net number of jobs in october -56.000. Which is extreme. I should have known about these banks, by the way, as there was no outright money destruction and bail in of depositors.
  1. November 14, 2015 at 11:40 am

    I believe the key factor in secular stagnation is the increasing inequality leading to plutonomy — money is flowing to the hands of the top 0.1% who are awash in cash and have no demands — they give loans to the bottom 90% which needs debt to survive and cannot afford to demand anything — not even Hershey chocolates. Debt forgiveness is the solution suggested by Mian and Sufi. See my earlier post for a lengthier explanation:

  2. November 14, 2015 at 3:17 pm

    Moneynumbers are now clogging the financial casino where they are generating ever more moneynumbers – at the expense of the productive economy.
    We are starving.

  3. November 14, 2015 at 5:26 pm

    Forgiveness of debt, Gifting as the new economic and monetary policy paradigm to be integrated into the old paradigm of Debt, inverting the will to power and control into the will to individual freedom.


  4. BC
    November 14, 2015 at 5:59 pm

    The supply-side regime is a function of the Long Wave Downwave’s reflationary/disinflationary phase, i.e., falling nominal interest rates from the Long Wave peak encourage increasing debt to GDP and the reflationary growth effects.

    The demand-side regime operates during the inflationary Long Wave Upwave into the Long Wave Peak when the effects of peak demographics and capacity constraints occur, frequently coinciding with price distortions resulting from war and energy/material supply shocks (1970s, WW I, 1850s-60s, 1810s, 1750s-60s, 1700s, and 1650s).

    We are currently in the late Long Wave Downwave’s Schumpeterian depression of the debt-deflationary regime of the Long Wave Trough (Japan since the late 1990s, US and world in the 1930s-40s, 1890s, and 1830s-40s). Additional supply-side debt expansion no longer results in an acceleration of reflationary growth.

    Further central bank efforts to expand bank reserves to create financial asset bubbles in order to achieve a “wealth effect” results instead in exacerbating inequality and additional incremental rentier claims on future growth of profits, wages, and gov’t receipts in perpetuity. The result today in the US is that total annual net flows to the financialized sectors of the economy now equal total annual value-added output. That is, there can be no real growth per capita of output after net flows to the financialized sector.

    As suggested above, the only way out is debt forgiveness/default and increasing labor share vs. financial capital’s share.

    However, unprecedented global structural constraints are converging to thwart attempts at debt jubilee and increasing labor share, including Peak Oil; population overshoot; resource depletion per capita; climate change; peak demographic drag effects; extreme inequality; political polarization; fiscal constraints/austerity; failed states; mass population migration and resulting social and political conflicts and instability; imperial military overstretch; the Marxian falling rate of profits crisis (despite high profits to GDP, increasingly “financial” profits, the “growth” of profits have been decelerating dramatically since 2000); and accelerating automation and elimination of paid employment and purchasing power in the services sector without net replacement.

    The foregoing constraints are part of “Limits to Growth” (LTG) and the de facto end of growth (EOG).

    The historical parallels to our current situation were in the late 19th and early 20th centuries, i.e., the end of “Globalization I” and the British Empire leading up to WW I and the Russian Revolution, and the late 18th century, i.e., the end of the Ancien Regime and onset of the French Revolution.

    The implied outcome of the Long Wave Trough’s Schumpeterian deflationary depression will be that the world will follow Japan’s trajectory since the late 1990s and early 2000s, as central banks will continue QEternity to fund fiscal deficits to prevent nominal GDP from contracting, resulting in increase public debt to GDP.

    The trend rate of price inflation will continue to decelerate with falling interest rates, including the US 10-year yield falling to 1% or below; continuation of ZIRP and eventually NIRP; decelerating wages and productivity; declining labor force participation and increasing labor underutilization; real GDP per capita trending at ~0% since 2007; no growth or decline in real gov’t spending per capita; and no real total return to assets and 35-50% cyclical drawdown risk along the way.

    The larger global geopolitical implications of the conditions above imply a disintegration and eventual collapse of “globalization” (Anglo-American imperial trade regime), resulting from a deterioration and eventual breakdown in US-China diplomatic and trade relations, risking regional blockades, embargoes, and military conflict and the resulting disruptions to resource and trade flows, shortages, and associated price distortions and periodic inflationary spikes.

    LTG and EOG create imperatives that could lead to a last-man-standing global contest between the West and China/Russia for the remaining scarce resources of finite planet Earth.

  5. November 15, 2015 at 4:49 pm

    The world economy is designed to function on a free lunch from mother Earth. Rich people have succeeded in privatizing the commons; even housing is viewed as a capitalist game.

    Secular stagnation reflects the increasing difficulty of centralizing capital in the modern world of increasing friction from a gradual decline of natural bounty.

    The way forward is obvious. It remains unchosen because wealthy mafioso corporatistas will not be able to steal from Earth and Humanity when qualitative growth replaces violent support of quantitative centralization of wealth.

  6. November 16, 2015 at 3:08 pm

    I think it necessary to keep firmly in mind that the prevailing economic dynamic is *not* “trickle-down”, but rather “suck-up”. The phenomenon is driven by the centripetal nature of indirect mutualism: any changes in an autocatalytic system that bring more resources into the orbit are rewarded. Those that decrease inputs receive no such augmentation. “Resources here can correspond to natural resources, capital or currency.

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