Econontersect: Australian economist Steve Keen has criticized the the course of movement in the U.S. economy in a recent interview posted by Piera. In Keen’s view the U.S. is paying too little attention to what caused the Great Financial Crisis (GFC) in the first place. He also discusses why the economic fortunes of the U.S. and the UK have diverged in the post-crisis period.
Keen says that the U.S. housing market recovery has real limits based on the lack of sustained income growth. This is in spite of fact that political dysfunction has not thrown any impediments (until recently) in the way of traditional Keynesian stabilizers kicking in to buffer the economy. More recently the sequester has introduced government spending cuts, but this has occurred at a time when the private sector has started to increase borrowing again.
Keen says the success of the U.S. “austerity” and the failure of the same in the UK is due to the happenstance of (accidental?) coordination between government and the private sector in the western hemisphere and the lack of same in the UK.
Keen:
The thing what’s been in their favour is that while these cuts are coming through the private sector has started taking on debt again and spending into the economy. Timing here is significant. In England the government was trying to cut spending while the private sector was also deleveraging and that accelerated the downturn.
The biggest criticism leveled by Keen is that there has been no effort to understand the causes of the GFC:
There’s no accurate analysis of the causes of the crisis yet. Bernanke is still assuming that it must have been a consequence of an exogenous shock as capitalism cannot have endogenous problems. So the Fed is still paying too little attention to what caused the crisis in the first place.
What this has done is to slow down the rate at which the private sector was deleveraging and prompted them to start borrowing money again at a point at which they are still at historically unprecedented levels of indebtedness.
So, the success of the U.S. relative to the rest of the world is just due to luck, in Keen’s view. The current increase in private debt in the U.S. can only offer only temporary relief for the economy because the role of excessive private debt in creating the crisis has not been recognized and the high debt level has not been addressed.
Keen’s final statement:
The economy remains fragile going forward and there is still a risk of the whole world turning Japanese in the aftermath of the crisis.
Source:
- “There is Still a Risk of the Whole World Turning Japanese” (Steve Keen, Piera, 25 July 2013)
