March 17, 2014
That wouldn’t be such a big problem if he didn’t write on economic issues. This time the problem affects his discussion of past and future efforts at boosting the economy.
Samuelson seems to think that investment and consumption are depressed because of businesses and consumers fears about the economy. If he had access to the economic data, he would know that non-residential investment is almost back to its pre-recession share of GDP (12.3 percent in the most recent quarter compared to an average of 12.8 percent in the years 2005-2007). Given the large amount of excess capacity in most manufacturing sectors, this doesn’t suggest much business pessimism. The consumption share of GDP is at near record highs, exceeded only by the 2011 and 2012 shares, which were boosted by the payroll tax cut.
So neither business investment nor consumption show any evidence of weakness due to pessimism. The obvious basis for continuing weakness is that housing construction is still depressed due to the overbuilding of the bubble years and continued high vacancy rates. Also consumption is lower relative to disposable income than it was during the bubble years because households have lost close to $8 trillion in bubble generated housing equity. Ultimately the problem is that the economy needs some extraordinary source of demand (e.g. large budget deficits or asset bubbles) to replace the $500 billion in annual demand lost to the trade deficit.
The piece also cites John Taylor’s work to claim that the tax cuts that were part of the stimulus had no effect on consumption. Research by David Rosnick and me shows that Taylor’s results on this issue are not robust. Minor changes in specification lead to the conclusion that the tax cuts had a substantial impact on consumption and growth.
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