Secular Stagnation: Implausible Lie?
Continuing from Secular Stagnation: A Convenient Canard?
Banks refusing to profit? What part of for profit does one forget? NIM's and regulatory induced liquidity preferences (IOER) explain the CB's (commercial bank) disintermediation, not an aging population or greater savings.
Secular stagnation is a misdiagnosis which has many misconceptions: CB's are "intermediaries" and dependent upon deposits to give credit or make loans; credit demand and supply are separate; savings equal investment; interest rates (the price of loan funds) act in a void as a magical "market clearing" price; and savings are separate from investment, economic activity levels and distribution of income.
In doing so, SS neglects how finance, financialization and financial markets actually function, and ignores the creation of credit and purchasing power viz. the CB's ability to create money "ex nihilo"; and that incomes and savings are a consequence of credit based financing and productive investment, not the other way round.
Real wages +3% total since 1973 indicates a surfeit of slack in labor markets combined with monopsony. If current unemployment (matching 1969) of 3.7% were remotely true, we would not have a dearth of healthy wage inflation, rising wage inequality and economic stagnation.
Good news, the very symptoms which the canard of demographics attempts to explain away, have a logical explanation:
1. growth in real wages and ROC in real aggregate demand has been negative since at least the millennium, if not since the early 70's (structural low wage growth economy)
2. the share of wages in income has fallen while income inequality has risen
3. commercial banks are never intermediaries for loanable funds
4. willful or not, there has been a massive lending "disintermediation" of those CB's
5. liquidity "preference" has "savings"* and credit (loan funds) being channeled into financialization rather than real investment (see here)
*(Post 80's, household savings rates have declined precipitously.)
And thus the bad news about that seemingly convenient canard... As there never was any robust or sustainable recovery in the first place, upon which to build in the future, slack or under and unemployment is woefully under advertised [the departed 19M].
Return to #1 above, rinse and repeat, and it's just one big fat house of cards which won't take much more than a huff, puff, tariff or twitter to bring down.
Other side effects: multi decade economic malaise, gutting of the middle class, and widening of the "Grand Canyon" in income disparity (GINI coefficient), has fueled a groundswell of popular discontent leading to the global rise of populism.
This tired old excuse which focuses on supply side and ignores the demand side, needs to be put back to bed with other memes and fairy tales, which were discredited and debunked long ago viz NAIRU, Phillips Curve, we could go on but shant...
Recommended reading:
What Mainstream Economists Get Wrong About Secular Stagnation
Some thoughts on secular stagnation, loanable funds and the ZLB
The New Normal: Demand, Secular Stagnation and the Vanishing Middle-Class
Macroeconomics Beyond the NAIRU (debunking the Phillips Curve and NAIRU)
Demographics and the Secular Stagnation Hypothesis in Europe
Monopsony?
Change Is Necessary?
Secular stagnation posits that 1. there has been an increase of deposits (savings) from an aging population, along with Asian precautionary savings, 2. Said inflows outweigh productive real GDP investment (type 2 as opposed to type 1). 3. The inflows or deposits in loanable funds have been so great, that the commercial banks cannot lend all of it out, even at historically low interest rates.Numbers 1 and 2, any aging and/or ethnicity aside, are true in aggregate and can result in in a dampening of production (GDP) and aggregate demand. Number 3 is the obvious canard upon which the false house of cards known as secular stagnation is built.
Banks refusing to profit? What part of for profit does one forget? NIM's and regulatory induced liquidity preferences (IOER) explain the CB's (commercial bank) disintermediation, not an aging population or greater savings.
Secular stagnation is a misdiagnosis which has many misconceptions: CB's are "intermediaries" and dependent upon deposits to give credit or make loans; credit demand and supply are separate; savings equal investment; interest rates (the price of loan funds) act in a void as a magical "market clearing" price; and savings are separate from investment, economic activity levels and distribution of income.
In doing so, SS neglects how finance, financialization and financial markets actually function, and ignores the creation of credit and purchasing power viz. the CB's ability to create money "ex nihilo"; and that incomes and savings are a consequence of credit based financing and productive investment, not the other way round.
Good news, the very symptoms which the canard of demographics attempts to explain away, have a logical explanation:
1. growth in real wages and ROC in real aggregate demand has been negative since at least the millennium, if not since the early 70's (structural low wage growth economy)
2. the share of wages in income has fallen while income inequality has risen
3. commercial banks are never intermediaries for loanable funds
4. willful or not, there has been a massive lending "disintermediation" of those CB's
5. liquidity "preference" has "savings"* and credit (loan funds) being channeled into financialization rather than real investment (see here)
*(Post 80's, household savings rates have declined precipitously.)
And thus the bad news about that seemingly convenient canard... As there never was any robust or sustainable recovery in the first place, upon which to build in the future, slack or under and unemployment is woefully under advertised [the departed 19M].
Return to #1 above, rinse and repeat, and it's just one big fat house of cards which won't take much more than a huff, puff, tariff or twitter to bring down.
Other side effects: multi decade economic malaise, gutting of the middle class, and widening of the "Grand Canyon" in income disparity (GINI coefficient), has fueled a groundswell of popular discontent leading to the global rise of populism.
The slowdown in TFP (total factor productivity) growth reflects a demand (management) crisis, with the ‘under-consumption’ driven by stagnating real wages, rising inequality and greater job insecurity and polarization. - The New Normal (Storm 2017)Bottom line, the SS (Secular Stagnation Supply Side theory) has been dusted off, gussied up and is back in circulation, as nothing more than pabulum (MSM parrot food) for an uninformed public (the uninitiated), and economic false doctrine.
This tired old excuse which focuses on supply side and ignores the demand side, needs to be put back to bed with other memes and fairy tales, which were discredited and debunked long ago viz NAIRU, Phillips Curve, we could go on but shant...
Recommended reading:
What Mainstream Economists Get Wrong About Secular Stagnation
Some thoughts on secular stagnation, loanable funds and the ZLB
The New Normal: Demand, Secular Stagnation and the Vanishing Middle-Class
Macroeconomics Beyond the NAIRU (debunking the Phillips Curve and NAIRU)
Demographics and the Secular Stagnation Hypothesis in Europe
Monopsony?
Change Is Necessary?
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