Secular stagnation & the new stylised facts of growth
To quote Wikipedia:
The term “stylised facts” was introduced by the economist Nicholas Kaldor in the context of a debate on economic growth theory in 1961, expanding on model assumptions made in a 1957 paper.Criticizing the neoclassical models of economic growth of his time, Kaldor argues that theory construction should begin with a summary of the relevant facts. However, to handle the problem that “facts as recorded by statisticians, are always subject to numerous snags and qualifications, and for that reason are incapable of being summarized”, he suggests that theorists “should be free to start off with a stylised view of the facts – i.e. concentrate on broad tendencies, ignoring individual detail”.With respect to broad tendencies that result from such a process, Kaldor coins the term “stylized facts”.
So, in the spirit of all this, I thought it might be useful to filter down three (long!) blog posts on secular stagnation to six stylised facts and about 300 words on the recent trends in the UK macro-economy.
- Rising GDP growth does not necessarily feed through to rising standards of living for households in the middle and below.
- Periods of growth are associated with a falling household savings ratio.
- Periods of growth are associated with a widening trade deficit.
- Household borrowing is more responsive to low interest rates than corporate borrowing.
- The marginal propensity to invest is falling. There is, in times of growth, a large surplus of profits over investment.
- There is a long term tendency for the share of consumption in GDP to rise.
Thinking about it all in terms of financial balances and macro outcomes – during periods of decent GDP growth the fruits of that growth are not distributed as used to be assumed.
Income growth is accruing to those at the top of distribution where as those in the middle increasingly grow their spending by more than their income.
In terms of financial balances, that of the household sector is negative and that of the corporate sector positive. This is reversal of the assumed disposition whereby households are net savers and through financial intermediation those savings are channelled to the corporate sector to fund investment in the capital stock.
The result is rising household debt, rising imports, weak investment and an increase in financial vulnerability to external shocks.
As long as the pattern of growth looks like this, then I’m afraid Larry Summers is right in his neo-secular stagnation thesis. The drivers of which are increasing corporate short termism and rising inequality.