Wednesday, December 17, 2008

Stimulus and Stagnation

by the Sandwichman

Economic stimulus is the talk of the town. Over at Talking Points Memo (and on his own blog), Robert Reich has raised the specter of "secular stagnation" -- what happens if we stimulate the economy but consumers refuse to go back to their old, pre-crisis spending ways?

Dean Baker thinks secular stagnation is easy and takes a page from the Sandwichman's blog: reduce the hours of work. Sandwichman thinks "secular stagnation" is just the economists' way of being dissing cornucopia. Sandwichman engages Randall Wray in a discussion of shorter working time in which Professor Wray warns against saddling the good idea of shorter hours with "unwarranted claim that they will relieve involuntary idleness."


Jack said...

With all the talk about stimulating the economy comes a plethora of circuitous, meandering schemes by which it is hopes that things will return to a better place. What if the prior place was not truly a better place? Any place might be better than the one we're in or at, but the last decade hasn't been such a great economic place for so many people.

I was very recently reviewing the dismal state of my personal "privatized" retirement account, the 401K part. There I came once again upon an interesting term, rebalancing. This is the magic process whereby we mortals figure out what will be the best distribution of our funds so as to achieve the greatest growth with the safest approach. I said it was magic, didn't I?

Well, it occurred to me that what the economy needed was to be rebalanced. If it can work for retirement planning both long and short term, why not the economy? For the past two or three decades the economy has been going through a steady one directional phase that has resulted in something of a skewed income and wealth distribution. If there isn't a rebalancing of the income distribution, in particular, there isn't going to be any economic growth. When the problem is nation wide the short term (short sighted?) circuitous routes to awaken dormant spending habits is not going to cut it. Of course another World War might help a bit, but the unintended consequences might be catastrophic. And still we couldn't be certain that the average working stiff, that the economy is so dependent upon, will get their fair share of even war spending.

The solution is not that complex. When the vast majority of the economic work force is expected to survive on a trickle down it eventually results in a melt down. Reverse engines, full speed ahead. It's that simple.

Shag from Brookline said...

It was just a few short years ago that the observation was made of the vast wealth that would soon be passed on as pre-baby boomers (such as me, in my late 70s) pass on. Perhaps baby boomers used their homes as ATMs because of this anticipated inheritance instead of saving, as well as having their children take student loans for their college educations. Many of us geezers have seen our net worths decline significantly even though we no longer have mortgages on our homes, requiring more dipping into principle. Many of us geezers are too old to reenter the work force, especially with unemployment getting higher with the economic crises. Many of us geezers' empty nests may start to fill up as children and grandchildren lose their jobs. And youngsters in college may have to look forward to living with their parents as employment potentials continue in decline. I lived through the Great Depression without really feeling its ravages, learning more about it after becoming an adult. Perhaps my immigrant parents protected my brother and me as we grew up. Perhaps geezers like me have to do the same for our children who are now adults who grew up without having gone through a depression or even a serious recession looking at the world through rose colored glasses.

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