December, 2011

Measuring by GDP Shares, There Is No Shortfall

by Dean Baker
The Conversation
December 22nd, 2011

Don, I was referring to shares of GDP. In the case of consumption, the savings rate was almost zero in the years from 2004 to 2007. (There are some issues with the data related to the statistical discrepancy. We find evidence that capital gains income was erroneously counted as ordinary income, leading to an overstatement [...]

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Investment Is Depressed, and Consumption Isn’t

by Donald J. Boudreaux
The Conversation
December 22nd, 2011

I’m mystified by Dean Baker’s claim, in his latest entry, that “Non-residential investment is back to its pre-recession level of GDP.” According to figures available here (through 2010, the latest figures that I can find), inflation-adjusted net non-residential investment in 2010 was down 68 percent from its 2006 level, and down 72 percent from its [...]

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Regime Uncertainty? Investment Isn’t Depressed

by Dean Baker
The Conversation
December 20th, 2011

Don raises several interesting issues about the role of regime uncertainty, however one important piece of evidence against it being a major issue in the current downturn is that investment is not depressed. Non-residential investment is back to its pre-recession level of GDP. What is down is residential investment and consumption. The former is more [...]

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Becoming More Certain about the Role of Regime Uncertainty

by Donald J. Boudreaux
The Conversation
December 20th, 2011

I agree with Tim Congdon that Robert Higgs’s work on regime uncertainty is quite useful to the larger exploration of why unemployment sometimes remains stubbornly high for long periods of time. It’s true that Higgs pays little attention to fiscal and monetary policies and to aggregate demand. That’s not to say that the phenomena that [...]

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Faith-Based Economics?

by Dean Baker
The Conversation
December 14th, 2011

After Tim Congdon’s response to my earlier piece, I am a bit confused what we are debating. First, to finish up the simplest point, Congdon’s original post expressed unhappiness about President Obama’s $800 billion a year fiscal stimulus. I pointed out that it was actually closer to $300 billion a year. Now Congdon has come [...]

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Replies to Baker, Boudreaux, and Hetzel

by Tim Congdon
The Conversation
December 13th, 2011

First of all, I must thank the Cato Institute for hosting this blog discussion on the liquidity trap and its role (if any) in current policy-making, issues which are considered at more length in my new book Money in a Free Society. Secondly, I am also very grateful for the interesting and thought-provoking comments from [...]

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Tim Congdon on Liquidity Traps vs. Portfolio Rebalancing

by Robert Hetzel
Reaction Essay
December 12th, 2011

Robert Hetzel reiterates that the zero lower bound for interest rates is a different phenomenon from a liquidity trap. The latter is an “irrelevant academic construct” as long as the central bank can create new money. Still, we learn little from this distinction unless we can determine the nature of the initial shock that caused pessimism among market participants; different types of shocks, monetary and real, call for different remedies. Central banks rarely use the analytical tools that would be necessary for them to evaluate their own roles in economically rigorous ways; instead, they tend to blame difficult times on the private sector, while taking credit for good ones.

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Keynes, Friedman, and Higgs

by Donald J. Boudreaux
Reaction Essay
December 9th, 2011

Don Boudreaux agrees that a monetarist policy approach would be preferable, but he draws our attention to a third relevant consideration: regime uncertainty, as described by the economist Robert Higgs. When businesses are uncertain about the major economic decisions of governments and central banks, they will defer new investments and retain cash rather than hiring new workers. Neither monetarism nor Keynesianism does anything to address the problem, which Keynes himself conceded was real.

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