Once again, the economic news is “unexpected” bad.  Official inflation is supposedly 3.2% annualized while real GDP is supposedly 1.3% annualized.  I suspect actual inflation is higher, which would mean that actual growth was correspondingly lower, but even if we take these figures at face value, they still do not support the Keynesian account of the crisis.

There are several explanations of recessions and depressions:

  • The one most approved by government, and most apt to  get glittering prizes at ivy league universities, is Keynesianism.  If there is unemployment, aggregate lack of demand for workers, there must be insufficient aggregate demand for goods, so government should print up some money and spend it.  This analysis never fails to be a hit with politicians.
  • Then there is the recalculation theory:  Lots of capitalists make big mistakes, thinking some activity is profitable (such as perhaps lending money to deadbeats to buy houses).   The balloon bursts, they discover they have been investing in the wrong stuff.  Lots of people who formerly had jobs in real estate, building houses, banking, and so forth now have to find new ways of making a living, which is hard.
  • Then there is the regime uncertainty theory.  Today, the major objective of businessmen is not finding lucrative ways to apply capital to create wealth, but to get an Obamacare waiver.   They are not hiring, because they fear unpredictable punishment.
  • Then there is the regulatory explosion.  To create jobs, a businessman needs to invest.  To invest, needs lots of permissions and permits, a rapidly increasing number of permissions and permits.  Cannot get them.   Savings therefore exceed investment.

In the immediate aftermath of the housing bust, the problem was probably recalculation and the regulatory explosion, but now it is regime uncertainy and the regulatory explosion.

One Response to “Stagflation”

  1. Alrenous says:

    Inflation is net delevitation, and I’m more interested in debasement. I’m glad to see the numbers, even fudged as they are, support the roughly 10% debasement that M3 has been showing.

    Which means everything would have gotten roughly 7% cheaper, except we have a government.

    “To invest, needs lots of permissions and permits, a rapidly increasing number of permissions and permits. Cannot get them. Savings therefore exceed investment.”

    Ah ha! Of course.
    Principle: like stereotypes, absurdities like Keynesianism have some roots in truth.
    In this case, inefficient hoarding of saving is in fact occurring. Keynes supposes this is because people are stupid and/or evil. While people are definitely stupid, in fact the hoarding is because all the permits are harming the marginal profit of investing the cash.
    Forcing dissaving is therefore, as expected, even less efficient than the original problem.
    The stupidity bottleneck is at the people implying that others are stupid. (Which should be no surprise. Also, irony==yes.)

Leave a Reply