Bruce Greenwald: An Alternative Explanation of the Great Recession

[racemize]

I thought this was pretty interesting.  Curious as to any informed opinions on his thesis?

 

[cpan]

I am definitely not an informed opinion but the thesis feels quiet logical to me.  There are a couple of other youtube videos with Bruce Greenwald going over the same idea if you search for his name.  I think Bruce is pointing out that the minsky cycle is but one of the cycles in economics.  There is also another cycle when the supply is increasing faster than the increase in demand.  The productivity increase in farming or manufacturing driven by competition causes 2 problems.  One is more and more excess labor becoming not productive enough to join the system of production.  Two is that prices drop because the demand is fixed or is growing less than the supply productivity growth.  This eventually results in a economy contraction that can not recover on its own.  There is no way to get out of this unless the excess labor can be deployed elsewhere in the economy that can produce value.  Or we have some way to grow demand for the existing system of production but not through debt financing which is unsustainable.  I like how his thesis ties competition into the macro economic cycle.  His example for Japan shows that the issue is not Japan suddenly produced less goods or goods with less utility in the 90s but its because the prices dropped or the goods produce by Japan couldn't compete because of China. 

 

The link between FED monetary policy and bank not having to pay interest on deposit is also interesting.  I just wish he had mentioned that it was not because the law got repealed that bank started to pay interest.  My reading seem to indicate that the money market (shadow banking of its day) pretty much was going to drive banks out of business if the law didn't get repealed.