Two points to keep in mind:
- If our economy went into decline after 1973, then 2023 marks half a century of decline.
- Long-term economic decline is indistinguishable from the decline of civilization.
In Why Raising Interest Rates to Fight Off Energy Inflation is Counterproductive by Hielke Van Doorslaer we read that hiking interest rates, our go-to method of fighting inflation,
puts monetary policy at cross-purposes with other policy priorities (such as investing in renewables and energy-efficiency) and risks further entrenching years of public and private underinvestment. In this way prohibitive interest rates will further exacerbate the trend of secular stagnation (defined by low rates of growth, productivity, and investment) that has plagued advanced economies for at least a decade (with some even dating the onset of the declining trend back to the 1970’s).
I agree that our existing anti-inflation policy is "at cross purposes with other policy priorities". As new anti-inflation policy, I have suggested pruning back the policies that promote credit use, and creating policies that induce people and businesses to accelerate their repayment of debt by offering tax benefits for doing so. (But this is not today's topic.)
At the end
of the excerpt Van Doorslaer points out that slow economic growth "has
plagued advanced economies for at least a decade" and adds
with some even dating the onset of the declining trend back to the 1970’s.
This is today's topic: long-term slowing of economic growth.
A footnote attached to the Van Doorslaer excerpt links to Jack Copley's "Decarbonizing the downturn: Addressing climate change in an age of stagnation". Copley points out that "GDP growth and investment have trended downward globally since at least the 1970s".
Since at least the 1970s. Since the 1970s or before. Yep. I wrote for the blog one time since the 1960s but then I went back and changed it because people might accept the 1970s as start-of-decline, but it sounds crazy to say our long decline began in the 1960s. So ya knock off the sharp edges, and try to look sane. But it amazes me that so many people, even economists, regularly fail to see the long decline. People too often see what they've been told they see, instead of looking with their own eyes.
Copley also says
Brenner has labelled the years 1965–1973 a transition period from ‘long boom to long downturn’ (2006: 37).
And if I read Steve Keen right, Minsky put the end of the Golden Age at 1966.
Scott Sumner has said
I am not denying that growth in US living standards slowed after 1973, rather I am arguing that it would have slowed more had we not reformed our economy.
Yeah, yeah. If the economy slowed after 1973 despite the reforms Sumner mentions, then those reforms were not the right solution.
If you don't know how and when the problem started, what the cause really was and what the problem really is, all you can do is guess at the solution.
America has had no doubt for half a century that we must balance the federal budget. But America refuses to acknowledge that the only way to balance the federal budget is by reducing private sector debt so that the economy can grow and people can afford to live. Once we get the economy growing we can easily balance the federal budget: Easily. It will be easy. And now you're questioning my sanity again.
We've been trying to balance the budget the wrong way for 50 years. We have not restored vigor to our economy. We have not even once actually balanced the federal budget: The last time the federal debt fell was in 1969. We need a better plan.
6 comments:
At Levy, Avoiding a Recession: The Fed Conundrum by Dimitri B. Papadimitriou, Michalis Nikiforos, and Gennaro Zezza (PDF, 13 pages). Papadimitriou is President of the Levy Economics Institute, if argument from authority floats your boat.
They start by showing a couple interesting graphs. Then in the second paragraph they say this:
"As we have repeatedly documented elsewhere (Papadimitriou, Nikiforos, and Zezza 2016), the prior three recoveries have been the slowest in the postwar history of the United States."
That's a powerful observation. Let me give it some context. The paper is dated August 2022. As far as available data goes, they define the word "now" to mean "at the end of 2022Q1", at least for those first two graphs.
Both graphs show data for the four most recent recessions, the ones I usually refer to as the 1991 recession, the 2001 recession, the 2008 recession, and the covid recession. FRED provides better dates:
1990-07-01, 1991-03-01
2001-03-01, 2001-11-01
2007-12-01, 2009-06-01
2020-02-01, 2020-04-01
Of all the recessions since the end of WWII, they say, the 1991 recession, the 2001 recession, and the 2008 recession had the slowest recoveries.
The covid recession lasted two months. It happened not because the economy was ripe for recession, but because of the covid shutdown. We shut the whole economy down, so of course there was a recession. Let's say that one wasn't a normal recession, and let's set it aside for this comment on recessions.
The covid recession aside, according to the Levy paper the last three recessions had the slowest recoveries. That's not a lot of information, but it should be enough to make you wonder if our economy has been going downhill for the whole post-WWII period.
The argument could be made.
Actually, their "slowest in postwar US history" quote reminded me of an interview I read with Robert Brenner some years back. (Brenner is mentioned by Copley in my post above.) The interview, dated January 29, 2009, appeared in The Asia-Pacific Journal.
I wrote about it on my old blog in a post dated October 14, 2010.
In the 2009 interview, Brenner said
"The basic source of today’s crisis is the declining vitality of the advanced economies since 1973, and, especially, since 2000. Economic performance in the U.S., Western Europe, and Japan has steadily deteriorated, business cycle by business cycle, in terms of every standard macroeconomic indicator -- GDP, investment, real wages, and so forth. Most telling, the business cycle that just ended, from 2001 through 2007, was -- by far -- the weakest of the postwar period, and this despite the greatest government-sponsored economic stimulus in U.S. peacetime history."
The argument has been made. I don't accept it because I like it. But I do like it because, based on things I have investigated for myself, I have to accept most of what Brenner says. And none of it do I have to disagree with.
For me, the Long Decline fits with what I know and with the way I look at the economy as cycles within cycles within cycles.
Q: If it is true, as Brenner says, that "The basic source of today’s crisis is the declining vitality of the advanced economies since 1973", then why isn't it common knowledge?
A: Because it is not "mainstream" economic thought. Scott Sumner, for instance, says the economy slowed after 1973, but that "the neoliberal reforms after 1980 helped growth" -- and he would add that if those reforms didn't help enough, then we only need more neoliberal reforms.
Most economists, including Scott Sumner, would have to change their thinking before ideas like Brenner's and Copley's and like what's in the Levy article become common knowledge.
The alternative is that people who are not economists but who have been harmed by long-term economic decline should not wait for the mainstream to change its course, but find a better, more healthy stream to drink from.
For me the bad year has been 1980 and the bad policy shift has been Reaganomics, but I suppose I have political biases. I've been blaming the risk shift, whereas you blame everything on debt. I suppose the two are related. Certainly the lending industry and the risk management industry operate as partners in crime in various ways.
Lorraine, I see that once again I am crying about slow growth and calling for better growth -- and you didn't even have to point it out to me this time.
I do, yes, I blame everything on debt, almost every day.
Regarding risk shift: I'm thinking of securitization of mortgages, for example, where the banks that make the loans take the asset-side paperwork and bundle it into something they can sell to investors. So the investors pay money to hold these mortgages, not all of which are as AAA as their ratings suggest.
And with the income they get from selling the securitized mortgages, the banks can make even more loans. So that kind of risk shift increases the amount of debt that is created, *and* moves the risk from the banks to the investors. A good deal all around -- but only for the bankers!
RE: 1980 and Reaganomics, I am old enough to remember when Barry Goldwater ran for President, against LBJ in 1964 if memory serves. I remember I hated Barry Goldwater. A few years later I noticed that I didn't know anything at all about Barry Goldwater; I only knew I hated him.
The problem I think was the media. We got our news from channel 2 (CBS) and 4 (NBC); 7 (ABC) always came in fuzzy. Presumably respectable channels. Maybe it was just the wiring in my brain that was bad.
When Reagan came along I was already studying econ and I understood the Keynesian view that government deficit spending props up the economy. I thought Reagan's government-cutting would be a disaster. It wasn't, and I've had less fear of the insane economics of republicans since that time. But if you look at the economy as being "propped up" by government spending, there is a lot more propping-up now than there used to be, and that is not an indication that "the fundamentals of our economy are sound".
I still worry a lot about the Debt Ceiling fights as a potential major disaster. The US has an advantage because the US dollar is the world's standard. But I think if we lose that advantage it will do us serious harm.
I have been surprised more than once, to find economic data that went bad either before the Reagan years, or after. I'll see if I can find a few of those for the blog. Maybe they will surprise you. That would make my day!
Following up. I said:
"I thought Reagan's government-cutting would be a disaster. It wasn't..."
Clarification:
It WAS a disaster in many ways, temporary ways like double-digit unemployment and longer-lasting ways perhaps, like generational differences arising from the adoption of supply-side economics. But Reagan did NOT create a Disaster like the global-financial-crisis-and-great-recession. He only accelerated our approach to it.
Bill Clinton was perhaps our last chance to avoid that disaster. Dunno.
Bill Clinton is the one guy who actually balanced the budget, so yeah, if MMT is right, indebted the private sector big time.
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