Nicholas Oulton and María Sebastiá-Barriel Report That Hysteresis Effects of Financial Crises Are Large
Things to Revisit and Rethink

Noted for January 25, 2013


  • Nicholas Oulton and María Sebastiá-Barriel: Long and short-term effects of the financial crisis on labour productivity, capital and output

  • John Maynard Keynes: The General Theory of Employment, Interest and Money, chapter 24: "[My] theory is moderately conservative…. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments [i.e., the level of public plus private investment,] and the basic rate of reward to those who own them [i.e., the interest rate], it will have accomplished all that is necessary… then there is no objection to be raised against the classical [laissez-faire economic] analysis…. [T]e traditional advantages of individualism will still hold good… advantages of efficiency… decentralisation and of the play of self-interest… individual responsibility… greatly widens the field for the exercise of personal choice. It is also the best safeguard of the variety of life… variety preserves the traditions which embody the most secure and successful choices of former generations… being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future. Whilst… government,,, adjusting to one another the propensity to consume and the inducement to invest would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it… as the condition of the successful functioning of individual initiative. For if effective demand is deficient, not only is the public scandal of wasted resources intolerable, but the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards."

  • Lars E O Svensson: Monetary policy and employment – monetary policy is too tight in Sweden

  • Paul Krugman: Martin Wolf, Hippie: "Martin Wolf… making the case that (shock!) the deficit is not America’s biggest problem, or indeed a problem at all right now…. [U]nlike Larry Summers yesterday, his piece doesn’t blur its point by starting with an extended exercise in dutiful deficit-bashing. Wolf also puts this in the context of what has been happening to the private sector. As he says, the collapse of the housing bubble and a sharp rise in saving (due both to wealth destruction and to deleveraging) has led to a sharp movement from financial deficit to financial surplus in the private sector. Those who claim to be deeply upset about public sector deficits should be asked, what would have happened, given this attempt by the private sector to move into surplus, if the public sector had tried to stay in balance. Can you say Second Great Depression?…. [T]he narrative that says that spending has surged under Obama is just wrong – what we’ve actually seen is a slowdown at exactly the time when, for macroeconomic reasons, we should have been spending more."

  • Mark Thoma sends us to Karen Dynan, Douglas Elmendorf, and Daniel Sichel: The Evolution of Household Income Volatility: "[T]he volatility of household income—as measured by the standard deviation of two-year percent changes in income—increased about 30 percent between the early 1970s and the late 2000s…. It stemmed primarily from an increasing frequency of very large income changes rather than larger changes throughout the distribution of income changes…. [M]en’s earnings became more volatile… rising volatility in men’s earnings owes both to rising volatility in earnings per hour and in hours worked…"

  • Robert Skidelsky: Meeting our makers: In the early 1950s, "Britain was an industrial giant. Today it is an industrial pygmy. Manufacturing was industry’s bedrock. In 1952 it produced a third of national output, employed 40% of the workforce, and made up a quarter of world manufacturing exports. Today manufacturing is just 12% of GDP, employs only 8% of the workforce, and sells 2% of the world’s manufacturing exports. The iconic names of industrial Britain are history: in their place is the service economy and supermarkets selling mainly imported goods. What happened? Was it inevitable? Does it matter?… Britain ended the Second World War with a technological edge in aircraft, aerospace, computers, and electronics which it failed to exploit. In the 1950 and early 1960s, British manufacturers dominated the home market and had about 20% of world exports, with some world beaters like the Comet airliner, the Mini, and the Harley Davidson motor cycle. Then a decline set in…"

  • Lynn Vavreck and John Sides: The Gamble: The 2012 Presidential Campaign