Quantitative Easing (QE) was supposed to stimulate the economy by encouraging investment with low interest money. That hasn’t happened, but why? Does no one want to borrow, or do banks not want to lend? My favorite financial columnist, Yves Smith, has laid out both theories. . . . → Read More: What’s Crippling the Recovery: Lack of Investment Demand or Too-Big-to-Lend Banks?
Joseph Stiglitz says that “Inequality is Holding Back the Recovery”. He’s right, but he gives the wrong reason, that “our middle class is too weak to support the consumer spending that has historically driven our economic growth.” This “Keynesian” spending model does not effectively address inequality and thus can lead to poor policy prescriptions. The real reason inequality stalls the economy is that natural resources and capital are monopolized at the top, kept away from the middle class that could invest them far more productively. . . . → Read More: Joseph Stiglitz Is Right About Inequality, but for the Wrong Reason
Paul Krugman says the economy suffers from a “liquidity trap” due to insufficient demand. In my view, we’re in an “inequality trap” as the One Percent, big corporations and banks hoard cash, starving small businesses for capital. . . . → Read More: Is Paul Krugman’s Liquidity Trap Really an Inequality Trap?
It’s a truism of pop Keynesian economics that consumer spending drives the economy; if spending slows in a recession; government must make up the difference. In reality, consumer spending merely signals what consumers want; producers may be unable or unwilling to deliver. Government spending may compensate—or make matters worse—depending on the type of spending and whether it’s financed by progressive taxes or by borrowing. . . . → Read More: The Keynesian Stimulus Spending Fallacy
In the May 24 New York Review of Books, Paul Krugman writes, “The truth is that recovery would be almost ridiculously easy to achieve; all we need is to reverse the austerity policies of the past couple of years and temporarily boost spending.” He continues, “… The strong measures that would all go a long . . . → Read More: How to (Really) End This Depression: a Response to Paul Krugman
Yale Prof. Robert Shiller, author of Irrational Exuberance (2000; 2005), predicted the 2008 financial collapse years before it happened. Last year, Shiller partnered with UC Berkeley Prof. George Akerlof to produce Animal Spirits–elaborating on the psychology that inspires “irrational exuberance” and other mass human behavior that affects the economy. . . . → Read More: Animal Spirits, by Akerlof and Shiller
Did Mussolini’s 1935 invasion of Abyssinia help Italy escape the Depression? . . . → Read More: Can Invading a Small Third-World Country Stimulate the Economy?