December 02, 2013
It seems that he can’t. In his column today on finding a word for the continuing downturn he tells readers:
“Why? Unlike Hansen, today’s stagnationists haven’t identified causes [of secular stagnation]. The problem might not be a dearth of investments so much as a surplus of risk aversion. For that, candidates abound: the traumatic impact of the Great Recession on confidence; a backlash against globalization, reduced cross-border investments by multinational firms; uncertain government policies; aging societies burdened by diminishing innovation and costly welfare states.
“Whatever the cause, we are in unfamiliar territory.”
Actually the most obvious cause for most of the shortfall in demand is the trade deficit. The deficit of more than $500 billion (@ 3 percent of GDP) is income generated in the United States that is creating demand elsewhere, not in the United States. This deficit in turn was a result of the over-valued dollar that followed the botched bailout from the East Asian financial crisis. We offset this deficit in the last 1990s with the demand created by the stock bubble. We offset it in the last decade with the demand created by the housing bubble.
Without another bubble we don’t have any source of demand to offset the trade deficit other than the budget deficit, which folks like Samuelson want to reduce. So there is no real mystery to anyone who is familiar with the national income accounts.
Samuelson is just wrong when he complains about “a surplus of risk aversion.” Investment is almost back to its pre-recession level measured as a share of GDP. Clearly this is not a problem.
There is likely an issue that consumption would have fallen relative to GDP in the absence of bubbles, as income has been redistributed upward (this is a main theme of my free book, Plunder and Blunder: The Rise and Fall of the Bubble Economy), but that is very different from an aversion to risk story.
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