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October 10, 2015

Latest Posts from Economist's View

Posted: 08 Oct 2015 12:06 AM PDT
Posted: 07 Oct 2015 12:46 PM PDT
Larry Summers continues his call for fiscal expansion:
Global economy: The case for expansion: ...The problem of secular stagnation — the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies — is growing worse in the wake of problems in most big emerging markets, starting with China. ... Industrialised economies that are barely running above stall speed can ill-afford a negative global shock. Policymakers badly underestimate the risks... If a recession were to occur, monetary policymakers lack the tools to respond. ...
This is no time for complacency. The idea that slow growth is only a temporary consequence of the 2008 financial crisis is absurd. ...
Long-term low interest rates radically alter how we should think about fiscal policy. Just as homeowners can afford larger mortgages when rates are low, government can also sustain higher deficits. ...
The case for more expansionary fiscal policy is especially strong when it is spent on investment or maintenance. ... While the problem before 2008 was too much lending, many more of today's problems have to do with too little lending for productive investment.
Inevitably, there will be discussion of the need for structural reform... — there always is. ...
Traditional approaches of focusing on sound government finance, increased supply potential and the avoidance of inflation court disaster. ... It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward.
[The full post is much, much longer.]
Posted: 07 Oct 2015 09:30 AM PDT
Support for the point I was making in my column yesterday:
Rethinking Parameters of the US Welfare State, by Tim Taylor: ...The ... question ... was about whether the welfare state undermines productivity and growth. Garfinkel and Smeeding point out that in the big picture, all the high-income and high-productivity nations of the world have large welfare states; indeed, one can argue that growth rates for many high-income nations were higher in the mid- and late 20th century, when the welfare state was comparatively larger, than back in the 19th century when the welfare state was smaller. Indeed, improved levels of education and health are widely recognized as important components of improved productivity. As they write: "Furthermore, by reducing economic insecurity, social insurance and safety nets make people more willing to take economic risks."
One can make any number of arguments for improving the design of the various aspects of the welfare state, or to point to certain countries where aspects of the welfare state became overbearing or dysfunctional. But from a big-picture viewpoint, it's hard to make the case that a large welfare state has been a drag on growth. Garfinkel and Smeeding write:
"Of course, many other factors besides social welfare spending have changed in the past 150 years. But, as we have seen, welfare state spending is now very large relative to the total production of goods and services in all advanced industrialized nations. If such spending had large adverse effects, it is doubtful that growth rates would have been so large in the last 30 years. The crude historical relationship suggests, at a minimum, no great ill effects and, more likely, a positive effect. The burden of proof clearly lies on the side of those who claim that welfare state programs are strangling productivity and growth. If they are right, they need to explain not only why all rich nations have large welfare states, but more importantly why growth rates have grown in most rich nations as their welfare states have grown larger."

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