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Home Publications Blogs Beat the Press Can Robert Samuelson Say "Trade Deficit?"

Can Robert Samuelson Say "Trade Deficit?"

Monday, 02 December 2013 05:49

It seems that he can't. In his column today on finding a word for the continuing downturn he tells readers:

"Why? Unlike Hansen, today’s stagnationists haven’t identified causes [of secular stagnation]. The problem might not be a dearth of investments so much as a surplus of risk aversion. For that, candidates abound: the traumatic impact of the Great Recession on confidence; a backlash against globalization, reduced cross-border investments by multinational firms; uncertain government policies; aging societies burdened by diminishing innovation and costly welfare states.

"Whatever the cause, we are in unfamiliar territory."

Actually the most obvious cause for most of the shortfall in demand is the trade deficit. The deficit of more than $500 billion (@ 3 percent of GDP) is income generated in the United States that is creating demand elsewhere, not in the United States. This deficit in turn was a result of the over-valued dollar that followed the botched bailout from the East Asian financial crisis. We offset this deficit in the last 1990s with the demand created by the stock bubble. We offset it in the last decade with the demand created by the housing bubble.

Without another bubble we don't have any source of demand to offset the trade deficit other than the budget deficit, which folks like Samuelson want to reduce. So there is no real mystery to anyone who is familiar with the national income accounts.

Samuelson is just wrong when he complains about "a surplus of risk aversion." Investment is almost back to its pre-recession level measured as a share of GDP. Clearly this is not a problem.
There is likely an issue that consumption would have fallen relative to GDP in the absence of bubbles, as income has been redistributed upward (this is a main theme of my free book, Plunder and Blunder: The Rise and Fall of the Bubble Economy), but that is very different from an aversion to risk story.

Comments (7)Add Comment
Samuelson the Economic Wordsmith Discovers Word Shortage, Corrects It With Incoherent Economic Vocabulary
written by Last Mover, December 02, 2013 7:43

Samuelson says:
Whatever the cause, we are in unfamiliar territory. Some years ago, I coined the clunky phrase “affluent deprivation” to describe our condition. By any historical measure, we are — and will remain — a rich society. Hence, the affluence. But we may feel poorer, “deprived,” because the economy no longer satisfies broad private and public wants, including an expectation of economic stability.

Getting the right words to match reality is hard. Secular stagnation is a warning. In the 1930s, it seemed a plausible theory backed by ample evidence. After World War II, it was destroyed by events: a population explosion (the “baby boom”), a new frontier (suburbia), and new technologies (television, jet travel, computers). There was no stagnation. Just the opposite.

Affluent deprivation? Unfamiliar territory? You don't say, Robert Samuelson, economic wordsmith. Well here's a term for you, conspicuous consumption, coined by economist Thorstein Veblen.

It means consumption for consumptions sake by the rich. Not for food, clothing and shelter. Not for heating and cooling. Not for health care. Not for training and education.

Consumption so conspicuous it's not for economic survival. In the land of plenty Samuelson disgraces so casually with an admonition to Americans to stop their Phil Gramm whining about not having enough to get by on. It's all a mental delusion isn't it.

Of course. Here it is, right in the Economic Predator Dictionary. How could we have missed it?

Affluent Deprivation Syndrome.

The inability to recognize and accept one's place in economic society depending on obvious productivity potential determined by free markets.

A condition of paranoia by the 99% of the 1% who believe
free markets are rigged to result in permanent economic slavery of the former by the latter.

Caused by an attempt to distinguish "conspicuous consumption" by the 1% from "survival consumption" by the 99% when in reality they are the same, historically proven through the well known trickle down of the former onto the latter.

This syndrome is cured by MSM media sock puppets like Robert Samuelson who remind Americans regularly how well off they actually are in absolute terms of total wealth for the 100% which deprives no one, by regularly using special words to distract the economic conversation away from reality - the economic deprivation of the 99% by the affluent 1%.

As Samuelson says, finding the right words to explain economics is really hard. America is eternally grateful for his outstanding success in this endeavor.
And he misses the elephant in the room
written by Steve Roth, December 02, 2013 8:47
Samuelson: "The problem might not be a dearth of investments so much as a surplus of risk aversion. For that, candidates abound: the traumatic impact of the Great Recession on confidence; a backlash against globalization, reduced cross-border investments by multinational firms; uncertain government policies; aging societies burdened by diminishing innovation and costly welfare states."

How about a three-decade upward redistribution of income, and massive increases in wealth and income concentration.

Add declining marginal propensity to spend, and you got a so-called "savings glut" (aka "not spending") and secular stagnation.

The arithmetic of this is straightforward and inexorable. Extreme inequality kills growth.

Of course this effect does not exist in a vacuum. But theoretically and arithmetically it's a *big* effect. Why isn't it even part of the conversation?
I Hate To Defend Anything Samuelson Says But
written by PJR, December 02, 2013 9:18
There is one type of risk aversion taking place, I think: hiring and expanding. Without sufficient and growing demand, companies individually cannot justify expansion. It's a collective action problem. Government hiring is the obvious solution.
There may be risk aversion
written by wkj, December 02, 2013 10:49
I just read a book, The Road to Recovery, by Andrew Smithers which argues, persuasively I thought, that one important factor in slowing the recovery is the reluctance of corporate management, whose compensation is largely driven by profits and stock prices, to make long term investments that would have long term benefits, but could have an adverse impact on profitability in the near term.

written by tom michl, December 02, 2013 4:40
I'm gonna have to pile on. Net business investment as a share of NDP is at an historic low. And it was already there pre-Lehman. The link between financialization and low investment seems pretty well established. No? Seems like a reason we're stuck in stagnation so deep even L. Summers sees it.
written by skeptonomist, December 02, 2013 7:25
Private investment is still nowhere near the pre-recession trend, although it has been recovering. I updated my plot of per-capita real private investment here:


Of course there is an aversion to investing when there is little demand. Despite how conservatives claim to believe in Say's law, they will not take the risk of investing and hiring until they see an actual rise in demand - there's nothing new about this. And why be anxious to expand when corporate profits are at record highs?

One reason demand in the US is so low is that real wages have gone down; this started long before the trade balance went negative in 1991. In fact there was a huge crash in real wages during the 70's. Of course the trade deficit does not help, and flight of manufacturing is one reason - but not the only one - that real wages have not increased
written by urban legend, December 02, 2013 10:30
How about considering "government is the problem" and the resulting generation-plus neglect of infrastructure as a "structural" (and secular) deficiency in aggregate demand? If on an annual basis we could have been employing an additional 3 million people from government expenditures, and with their incomes and spending generating another 3-5 million employed, would not the Great Recession have looked a lot different? Would our wage stagnation have been nearly as bad if there had been a higher demand for labor? Is it irrelevant that the country's infrastructure is no longer remotely close to first-world status?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.