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December 16, 2019 08:50 pm
Original Link: http://rss.slashdot.org/~r/Slashdot/slashdot/~3/nWq6LXPVebc/economists-got-the-decade-all-wrong-theyre-trying-to-figure-out-why
Economists Got the Decade All Wrong. They're Trying To Figure Out Why.
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.Read more of this story at Slashdot.
Original Link: http://rss.slashdot.org/~r/Slashdot/slashdot/~3/nWq6LXPVebc/economists-got-the-decade-all-wrong-theyre-trying-to-figure-out-why
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