Sunday, November 17, 2013

Dean Baker Comments On Asset Bubbles And Secular Stagnation

This is the first of several posts in response to Larry Summers' speech at the IMF conference.  Summers argued that the US economy had problems before the financial crisis.  We had asset bubbles in the stock market and in the real estate market which were necessary to maintain a full employment economy.  He concluded that the US economy may be in a period of secular stagnation in which asset bubbles are needed to have a full employment economy.  Dean Baker points out that asset bubbles are a bad solution, and he suggests some of the structural problems in the economy which might be responsible for stagnation.  Income inequality may contribute to stagnation because the income is going to people who save their money which is not being invested in domestic production. It is being used to speculate on the asset bubbles and declines that create opportunities for speculators.  He also points out that the US has been running trade deficits for a long time.  Its hard to grow an economy when jobs and income are being exported elsewhere on a regular basis.  

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