We all know how the global economic crisis began. The banks over-lent to the housing market. The subsequent burst of the housing bubble in the United States caused banks to fail, because banking had gone global and the big banks held one another’s bad loans. Banking failure caused a credit crunch. Lending dried up and … Continue reading Economic Rebalancing Acts

In a recent article, ‘Sympathy for the Luddites’, Paul Krugman looks at the impact of automation on the future of work. He argues that the old conflict between labor and capital is entering a new phase. In the past technological progress displaced unskilled labor; now it is knocking out skilled labor as well. There are … Continue reading Playing by the Rules

Funding for Lending, the Bank of England’s scheme to boost bank lending, has been operating now for nine months. The results? The Bank has now dispensed £16.5bn of cheap funding, but bank lending again contracted in the last quarter, this time by £300m. Previous schemes gave banks government guarantees on their borrowing provided they passed … Continue reading More Funding, Less Lending

How does one describe an economy betwixt and between boom and slump – the state of much of the world today? Growth is too low, unemployment is too high, but the economy is not actually contracting, but bouncing along somewhere near zero growth, with bursts of low growth interspersed with plunges into negative territory. Keynes … Continue reading Sub-normal Prosperity

A bit of history to remind us where the economists stood on the matter of fiscal austerity: On February 14, 2010, the Sunday Times published this letter: "It is now clear that the UK economy entered the recession with a large structural budget deficit. As a result the UK’s budget deficit is now the largest … Continue reading Unrepentant Economists

The doctrine of imposing present pain for future benefit has a long history – stretching all the way back to Adam Smith and his praise of “parsimony.” It is particularly vociferous in “hard times.” In 1930, US President Herbert Hoover was advised by his treasury secretary, Andrew Mellon: “Liquidate labor, liquidate stocks, liquidate the farmers, … Continue reading Austere Illusions

Recently I was asked a very reasonable question. When households and firms are deleveraging, why should this decrease demand? Intuitively, when one household decides to pay back debt, that household’s wealth decreases and the wealth of the creditor increases. While the debtor can spend less, the creditor can spend more. Lending is a transfer between … Continue reading Economics for the Interested Amateur #1: Deleveraging

Margaret Thatcher was Britain’s greatest twentieth-century peacetime prime minister. In the 1980’s, the near-simultaneous crisis of communism in the East and social democracy in the West gave her the opportunity to do great deeds. But it required a great leader to take advantage of it. Her relationship with Soviet leader Mikhail Gorbachev opened up the … Continue reading Thatcherism’s Bellicose Soul