The United States of Stagnation

The April U.S. Employment Situation Report was disappointing, but one could argue that the weak result is just the various indicators returning to their previous trends. There is little need for urgency with regards to Fed rate hikes, but I doubt that this will be enough to completely rule out a June rate hike. From a longer term perspective, it is difficult to see the U.S. economy breaking out of its low-growth trajectory.

Growth Limits (Again)

The "limits to growth" debate is continuing. Ramanan has written a good article discussing the role of the external constraint in this debate. I agree with what he says, but I am less troubled by the fact that it is not heavily discussed by others.

The Return Of The High Pressure Economy

The potential for rapid economic growth in the United States has popped up again as a partisan political issue. J.W. Mason has written an excellent article -- "Can Sanders Do It?" -- discussing the hubbub that has arisen around rapid growth projections based on Democratic candidate Sanders' economic plans. (On the Republican side, there previously was a debate regarding the growth projections given by the candidate Jeb Bush.) I agree whole-heartedly with J.W. Mason -- a return to a period of rapid growth in the United States is certainly possible. However, for those of my readers are obsessed about the government bond market, that should raise the hairs on the back of your neck...

Productivity Data Just Telling Us Growth Is Mediocre

Tim Duy recently published an article "Some Thoughts On Productivity And The Fed." He reflects on Fed Chair Yellen's July 10th speech. My view is that the fall in productivity is just a direct effect of the weak growth that has afflicted the United States, and is not telling us anything else. If policymakers tolerate weak demand growth, lousy productivity is what they should expect. This tells us little about inflation, as weak productivity growth could translate either into weak growth of real wages or real profits.

The Debt Supercycle Versus Secular Stagnation

Kenneth Rogoff has been advancing theories that the current environment of disappointing growth rates is the result of a "debt supercycle", not "secular stagnation". He recently summarised his arguments within the article "Debt supercycle, not secular stagnation". Although would agree that some version of a "debt supercycle" theory is correct, I am unconvinced about Rogoff's description of the mechanisms. Meanwhile, I doubt that he will succeed in winning the argument - he is pushing against the unmoveable object that is the circular logic of the natural rate of interest.

Book Review: Secular Stagnation: Facts, Causes and Cures

The Centre for Economic Policy Research (CEPR) has recently published the free eBook "Secular Stagnation: Facts, Causes and Cures" (edited by Coen Teulings and Richard Baldwin), which is a series of 13 articles by prominent economists on the topic of secular stagnation, along with a summary by the editors. (It is also available at Amazon for the Kindle, but it is not free in that format.) This review will act as a brief summary of some of the articles, along with some high level comments. I am currently writing a sequence of articles on "slow growth", and I will address some of the topics within the eBook at a later date in more detail.

Secular Stagnation Is Not Particularly New

In this article, I will review some economic history for the United States since the early 1990s. The objective is to argue that "secular stagnation" - which is generally viewed as a new thing which has popped up since the financial crisis for some reason or another - is really just an extension of existing trends that have been in place for at least 20 years. It's just that abnormal cyclical factors disguised underlying disappointing economic outcomes. The implications of this view is true are mixed. It is not impossible to revert to what is viewed as "normal" growth during an expansion, but we can expect that the economy will get stuck in the mud when recessions inevitably occur.

Using Stock-Flow Norms To Explain Secular Stagnation (Part 2)

Having looked at the increasing demand for financial assets in the first part of this essay, we now turn to look at the supply of financial assets. The business sector is unable to supply the required amount of financial assets, leaving balancing supply and demand to the government and household sectors. Once the housing bubble burst, the government sector was put into the position of being the key source of supply. This can only be accomplished by large fiscal deficits, which implies slow growth. Since this slow growth was the result of policies that were aimed at increasing growth, it is unlikely that this structural situation will be easily changed.

Using Stock-Flow Norms To Explain Secular Stagnation (Part 1)

Stock-Flow norms are a critical component of stock-flow consistent (SFC) modelling. Using this concept, we can see why economic growth has become slower in recent economic cycles, in particular the latest one. Unfortunately, this analysis indicates that the current slow growth - often referred to as secular stagnation - is structural, and not easily remedied. The reason is that there is considerable demand for savings, and the only way of generating those savings is via government deficits, which only appear if nominal GDP growth is slow. Finally, the fact that the rise of government debt outstanding was the consequence of policies that were aimed at increasing growth rates has the consequence that there is little chance of "fixing the debt", as those other policies would have to reversed.

Due to the length of this essay, I have split it into two parts. (Link to Part 2.)