DB: Consumption is high as a result of stock and housing wealth. But even in an extreme case, where the savings rate rose back to Great Recession levels, it probably would not be sufficient by itself to cause a recession and certainly not a severe one.
In short, the gloom and doom stories just don’t have much basis in reality. There are plenty of economic problems to concern us, but the prospect of another big crash is not one of them.
Me: The ratio of debt to GDP is still much higher than prior periods which gives less room for bubbles to expand. Also, the employment participation rate has no where to go but down save a new “gig” economy where everyone makes their living exchanging flowers or dandelions….which would be reflective of what would actually turn the economy around long term…..policies based on the natural philosophical concept of grace as in gifting digitally/intelligently integrated into profit making economic systems.
G: What would Minsky say?
Me: Minsky/Keen would undoubtedly say that the system is financially unstable because the fundamental direction of capitalism is “up”. And he/they would be right even though that is more an epi-phenomenon observation of the more fundamental economic fact that technologically advanced capital intensive economies have continually rising depreciation costs from all of the development we see looming up before our very eyes while simultaneously actually available aggregate demand is continually eroding due to labor being a soft target for cost savings, innovation and now AI.
Again it’s a case of economists not looking in the right place for insights. I see that Steve Keen has recently published a video explaining how saving is problematic macro-economically/the paradox of thrift and all of that…and using double entry bookkeeping to prove it. Again he’s right, but he’s still splashing around on the surface of accounting debits and credits as a tool instead of investigating the potentially paradigm changing economic insights and policies to be derived from the digital nature of the pricing, debt based monetary and accounting systems along with the equally paradigm changing insights regarding the point of sale as a stopping and summing point for costs and prices and retail sale being that plus the terminal summing point for all consumer price inflation.
I told Keen several years ago that he should be studying C. H. Douglas more than Minsky because he was the first disequilibrium theorist. He said he would have to investigate that, but went right back to making our eyes glaze over with mathematical abstractions. Old habits die hard. Don’t get me wrong, Keen is brilliant, but when you only observe abstract economic epi-phenomenons instead of their basic causes….it makes it hard to perceive the new paradigm and its transformational policies….even if you’re looking straight at it and advocating the very things they (the policies) will do.
JB: Hi, Craig, I wonder what Keen has said or would say about a saving culture like Germany’s, where massive saving allows lending at miniscule rates. I believe the re-developer of my small apartment building is paying less than 4% for construction money, with permanent financing perhaps 2.8% through the local Sparkasse. At such rates I thing my area west of Frankfurt is over-building, but with advantageous taxes thrown in the wealthy are getting a better return than from normal savings accounts.
Mr point obviously is that saving can have real benefits to employment (construction workers & suppliers) with the resultant product not well-occupied but the investors still benefiting. That is bad? Your ideas.
Micro-economically I’m sure he’d say that he admires them. Macro-economically their dominant position within the EU and the enforced usage of the Euro has lead to their enforcing austerity and debt penury on Greece, Spain and Ireland when finding a sane and humane way (like a debt jubilee for onerous indebtedness, a universal dividend and a discount/rebate at the general point of sale and retail sale) would enable them to right their economies and move forward with economically solidifying re-industrialization. Or at least those are the remedies he’d recommend if he recognized the new paradigm.
I’ve said on here before that macro-economics is really just the study of palliatives and unresolvable paradoxes and conundrums because it resides almost entirely within the paradigm of debt Only as the vehicle and form for the distribution of credit/money. That also makes virtually all of its insights mere “epicycles” and perturbations of the orbits of Mars, Jupiter and Saturn when what is required is inverting the problematic positions/primacy of the Earth/Debt Only and the Sun/Direct and Reciprocal Monetary Gifting….and as a result macro-economic austerity, the paradox of thrift, the dominance of Finance, individual scarcity of available to spend income and the increasing unworkability of free enterprise due to lack of sufficient demand….will be resolved.
JB: Craig, this is very useful, as usual. My focus is always on the multi-polarity of the world, whether looking at populations, GDP, tech patents or whatever. Leaving America in 2002 to sit in Middle Europe has given me this pespective. Financial economists must deal with multiple Central Banks and the Euro/Yuan near equality to the Dollar, for example. Indeed, Mr Trump’s attempt to isolate Iran may shortly bring the Euro/Yuan in as legal tender for valuation & payment petroleum. Logistically, Iran is linked to China by sea & now rail. A pipeline seems to be on its way. Therefore, financial pressure from geopolitical & economic causes will be taking another form.
Me: Thanks James. Yes geo-political considerations ARE important. The most important consideration to keep in mind while trying to implement the new paradigm is probably being vigilante about preventing a regional or even world war which I have no doubt Finance would not hesitate to foment if they thought they were going to lose their monopoly paradigm. Meanwhile everything out of Trump’s mouth is dis-integrative of our democratic principles, institutions and alliances. Merchants of chaos like Trump and Bannon only know how to smash ideas together instead of integrating the truths in apparently opposing perspectives, and they ignorantly push an entirely sketchy “fourth turning” hypothesis which is really just looking at the all too frequent result of a lack of wisdom and unwillingness to accomplish the thirdness greater oneness that is the signature of true integrations….like paradigm changes.
RL: Craig, why do you insist on blaming the Germans for the problem of financialization originating in the US UK financial capitalism.
In fact I do not blame the Germans for the toxic brand of financialization that you accurately describe and ascribe to American financial institutions. My critique of Germany is in their domineering role in the structural straight jacket of the Euro and the paradigmatic monopoly of Debt Only that all private and public financial institutions enjoy.
The Sparkassen being public banks are a far superior system than the blood sucking private too big to fail banks that exist here. I have followed Ellen Brown’s Public Banking movement since its beginning and affirm the better publicly administered variety.
However, let’s not fool ourselves, without a new pattern for the vehicle, form and direct distribution of credit/money….banking whether public or private is still domination accomplished and maintained.
We must focus on both the level of paradigm (a single unifying concept) and simultaneously on the way it can be rationally and ethically integrated/implemented seamlessly within the new pattern it creates.
Heterodox economists have the problems largely identified….they are just hampered by a couple of remaining orthodoxies and a failure to look in the right place to discern how to implement the new paradigm therefore not seeing the way out and the way home that such a paradigm would effect.