Wednesday, February 26, 2014

Palley Explaining Stagnation and Why it Matters


Larry Summers (here) and Paul Krugman (here) have recently identified the phenomenon of stagnation. Given that they are giants in today’s economic policy conversation, their views have naturally received enormous attention. That attention is very welcome because the issue is so important. However, there is also a danger that their dominance risks crowding out other explanations of stagnation, thereby short-circuiting debate.

Krugman has long emphasized the liquidity trap – zero lower bound to interest rates which supposedly prevents spending from reaching a level sufficient for full employment. Summers has added to this story by saying we have been in the throes of stagnation for a long while, but that has been obscured by years of serial asset price bubbles.

That is a good start to the conversation, but there are other views that dig deeper regarding the causes of stagnation.

Read more here.

2 comments:

  1. Mario Seccareccia wrote something similar few months ago. He advocates for a permanent or long term public sector stimulus.

    http://www.nakedcapitalism.com/2013/11/mario-seccareccia-larry-summers-secular-stagnation-and-the-crisis-of-the-new-consensus-model.html

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  2. Larry Summers’ story of serial bubbles delaying stagnation has substantial similarities with both accounts but he avoids blaming either capitalism or neoliberalism. That is hardly surprising as Summers has been a chief architect of the neoliberal system and remains committed to it, though he now wants to soften its impact.

    This needs to be pointed out regularly so I don't have to. Because as far as internet pukage goes, we're gonna need a bigger bucket:

    http://www.youtube.com/watch?v=Zx0ME65y72E

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