Secular Stagnation: A Three-Decade Overcorrection
Larry Summers’ recent speech (and Paul Krugman’s paean to it) have brought the issue of secular, decades-long stagnation to the front of the econoblogosphere agenda. Tyler Cowen, of course, made it prominent some time ago. But he posited a tech cause: we’ve picked the low-hanging innovation fruit. Summers, Krugman, et. al. suggest that policies and institutions (fiscal and monetary) are much more central.
I’m with them. In the 70s we saw an economic correction for arguably overvalued labor wages, a painful correction the economy enforced via inflation and (with Volcker’s help) unemployment — driving down labor compensation both nominal and especially real. (Even Ed Lambert, commie pinko that he is, has found real compensation per hour was overvalued given the state of the economy back then.)
And just about the time that that imbalance was clearing out in the 80s, we saw the rise of policies and politics systematically designed and deployed to destroy and restrict real labor wages and compensation. Those policies have achieved exactly that proximate goal, brilliantly. They have not, of course achieved their purported ultimate goal: bigger pie, rising boats, city on the hill. All that rot.
Instead we’ve gotten thirty years of secular stagnation.
The eternal economic justification for those policies? The imbalance that existed, briefly, thirty years ago, and which mostly corrected itself.
But those policies and politics have continued for three decades, always justified by resort to “70s-stagflation” hysteria.
It doesn’t take long before a stopped clock is very, very wrong.
Cross-posted at Asymptosis.
It surprises me to hear those words from Larry Summers. I can’t imagine that he means them from his heart. He has represented the profit interests of the financial sector for so many years.
The financial industry may be, just maybe, realizing that wages have to rise,,, but who will do it first? Who will lead? Who will resist? and maybe they are resigning themselves to the truth that wages have gone too low and it is not impossible to turn it around. So now they can talk about it safely in “public”, and appear to feel sorry… knowing that they don’t have a personal responsibility to resolve the problem of low wages.
in the 80s, we saw the rise of policies and politics systematically designed and deployed to destroy and restrict real labor wages and compensation. Those policies have achieved exactly that proximate goal, brilliantly.
When I say things like this, it gets called “nonsense on stilts.”
It’s still correct, of course.
“…who will do it first? Who will lead?…” And there is one of the biggest problems in a nutshell. Businesses are trapped in an obligate game where if any of them sit out the race to the bottom, their rational actions will benefit the other rat racers, not society nor themselves.
IMHO, here is where government and only government can pull us out of that dive, since IMHO one of its chief functions is to knock heads together when needed.
sadly, government is already in the hands of the enemy. people who don’t much care about “the enconomy”, and certainly not you, if they get theirs… which means “more than you.”
back in the seventies economists of all stripes (the real Samuelson) agreed that inflation was caused by workes sitting around the unemployment offices demanding more than they were worth. to the extent that those workers had any leverage at all… and that was not much… they might have been waiting… looking… for a wage that would still buy groceries a year in the future… that is it was fear of inflation that led to higher wage “demands” by labor.
but you wouldn’t expect an economist to think of it that way,
so they pushed the unemployment rate up above the “non accelerating inflation rate of unemployment” and made NAIRU a staple of economic “thought.”
still with us after all these years.