No, We Don’t “Need” a Recession

One quibble with the sharp Hunter Blair here: the argument that the supply of savings to fund private investment was highly elastic with respect to the after-tax interest rate has never been economically-respectable for anything other than a small open economy with a fixed exchange rate system. It was not respectable back in 2017 when it was made. The solid preponderance of evidence then was that the supply of savings was inelastic. And so it has proved:

Hunter Blair: It’s Not Trickling Down: New Data Provides No Evidence that the TCJA Is Working as Its Proponents Claimed It Would: "The strongest economically-respectable argument from proponents of the Trump administration’s Tax Cuts and Jobs Act (TCJA) was that... higher dividends incentivize households to save more, or attract more savings from abroad. The increased savings push down interest rates, so that it’s easier for corporations to borrow money to invest in new plants and equipment. And this new capital stock gives workers more and better tools to work with, boosting their productivity, and eventually that increased productivity should boost wages.... We now have 18 months of data on investment since the passage of the TCJA, plenty of time for its increased incentives for private investment to have taken hold. But the data doesn’t come close to supporting the story told by TCJA proponents...


#noted #2019-10-12

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