In The Nation:
This brings us to the question of why we got the housing bubble in the first place, which goes directly to the issue of inequality. In the three decades after World War II, there were no notable bubbles in the economy. Productivity growth translated into wage growth, which in turn led to more consumption. The increased demand led to more investment, productivity growth and wage growth.
This virtuous circle was broken by Reagan-era policies intended to weaken the power of ordinary workers. Wages no longer kept pace with productivity growth, eliminating the automatic link between productivity growth and demand growth. This led to excess capacity in the economy, which was filled in the 1990s with demand generated by the stock bubble and in the 2000s with demand generated by the housing bubble.
If the institutional changes of the Reagan era had not weakened workers’ bargaining power, these bubbles would not have been possible. Demand would have kept pace with output capacity. The Fed would not have felt the need to lower interest rates to sustain demand.
I discussed this question at THE GAP.
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“This led to excess capacity in the economy, which was filled in the 1990s with demand generated by the stock bubble and in the 2000s with demand generated by the housing bubble.”
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How exactly does this work? How is supposedly non-existent demand filled by a stock bubble?
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He seems to say the decline of the unions (“. . . workers’ bargaining power . . .”) in the 1980’s is the cause of the 2008 recession. I’ve not heard that before.
Rodger Malcolm Mitchell
I enjoyed that post, Rodger. I think a lot of economists will cite the wealth effect- makes people feel richer, etc. Who knows how strong it is… clearly something was compelling folks to spend money they didn’t have.
I think you’re right about education being key, but I worry about where the jobs will come from. Our economy seems structurally incapable of job creation, and I wonder if education can fix that.
Nick, the MMT folks focus two goals: Price stability and full employment, with 2% being something of a magic number. That is, they feel 2% inflation and 2% unemployment are about right. What may be missing from these goals is job quality.
MMT wants the government to provide a job to anyone who wants one, and apparently the job can be anything. But I suspect a nation of Walmart greeters is not a solution to any of our ills.
So what about a nation of college grads? Is that better? Despite the typical “Who-will-pick-up-the-garbage?” questions, I suspect the answer may be, “Yes.”
A college grad, picking up garbage, may be more likely to think of better garbage-picking methods, to the benefit of society. This is an extreme example, and I’ve left the psychology of job satisfaction out of the mix, but I speculate, that education will lift the economy, meaning MMT’s focus on jobs is fundamentally wrong.
I’m in the midst of pondering a blog post that discusses employment, not as a goal but as a symptom. One tentative paragraph goes like this:
“In short, unemployment may be only a symptom, just as a temperature is a symptom of influenza, and focusing on the symptom may divert attention from the fundamental problem, which is acquisition ability)– people’s ability to acquire what they want.”
The concept contains a bit more psychology than I’d like, but it may move us toward some economic solutions that mere job creation cannot.
Thoughts?
Rodger Malcolm Mitchell
Sometimes having an education can make one think certain tasks are beneath them. Yet, that is not a rule set in stone. I have also seen first hand people in positions of authority who could not survive if they were a worker. Which brings me to an old saying,”The world needs ditch diggers too!”. Most will agree with that saying. So if we know we need the working class, why not see to it the working class is taken care of?
I find it amazing that had it not been for bubbles, unemployment would have been a problem much sooner.
Paul,
The world does not need ditch diggers. The world needs ditches to be dug. Slowly, inexorably, society is moving away from dumb human labor and toward smart machine labor.
Those people who do not have an eduction will not be relegated to the lowest jobs. They will have no jobs at all. There simply will be no ditch-digging work available.
My complaint with MMT is (to the best of my knowledge) it ignores job quality in its prescription for the government to be the employer of last resort.
How about instead the government being the educator of first resort?
Rodger Malcolm Mitchell