tag:blogger.com,1999:blog-8702840202604739302.post7411860497517321135..comments2024-03-28T03:38:53.734-07:00Comments on MacroMania: U.S. GDP Expenditure ComponentsDavid Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-8702840202604739302.post-46637893586802182312018-02-20T13:49:32.049-08:002018-02-20T13:49:32.049-08:00David, just armchair theorizing here, but could th...David, just armchair theorizing here, but could the volatility in government spending have to do with state-government spending? If so, it might make more sense why it bounces around so much.Anonymoushttps://www.blogger.com/profile/17200204163910059400noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-2291576948774187062018-02-20T11:54:55.145-08:002018-02-20T11:54:55.145-08:00As a fellow admirer of Schumpeter (1939), I'd ...As a fellow admirer of Schumpeter (1939), I'd look for the answer there. He argues that <br />(i) innovators ("entrepreneurs) are not risk-bearers, instead they lose other people money (Ch. III.C) <br />(ii) "Innovation is not only the most important immediate source of gains [and private capital formation], but also indirectly produces, through the process it sets going, most of those situations from which windfall gains and losses arise" (Ch. III.C)<br />(iii) the modus operandi of innovation is bank money creation: banks issue to the innovators new means of payment created ad hoc and this is what allows the innovators to operate and effect change on the economy. Thus funds are not withdrawn from existing "old" firms, but with the expansion of the money supply the purchasing power of the funds available to the "old" firms declines. Part of the process of innovation thus involves a complete readjustment of prices to a new reality, as the successful innovators have their bank credit lines regularly renewed. (ch. III.D) <br />(iv) As a result per Schumpeter the process of innovation and growth is wholly dependent on the quality of the banking system and its ability to direct funding to those who will be successful innovators. Because this "requires intellectual and moral qualities not present in all people who take to the banking profession ... bankers may, at some times and in some places, fail to be up to the mark corporatively ... [and] the failure of the banking community to function in the way required by the structure of the capitalist machine accounts for most of the events which the majority of observers would call 'catastrophes.'" (Ch. III.D)<br /><br />In short, if you want a theory of why Schumpeterian growth booms are failing to appear, Schumpeter would tell you to take a very close look at how the structure of banking has changed. Since one of the most basic themes of modern financial history is the displacement of banks by "market-based" finance, that's probably a very good first place to look. <br /><br />And on that note let me engage in some shameless self-promotion by posting a link to a paper that I think you've already seen, David.<br />Current draft (with some framing based on the sociology literature): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3120187 <br />Older draft (for those who will gag on the sociology aspects of the paper): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2766693<br /><br />Carolyn Sissoko<br /><br />P.S. Schumpeter goes on to give an innovation-based theory of the interest rate that ties in with money markets, and argues that this is distinct from the capital markets interest rate with which we are all familiar. His effort to explain the connection between the two in Chapter IV is fascinating, even brilliant, but eventually at least for me becomes rather hard to follow.anonhttps://www.blogger.com/profile/14191057054802106492noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-38551792130477367072018-02-20T11:06:23.844-08:002018-02-20T11:06:23.844-08:00Very off-the-cuff theory here. What you are seeing...Very off-the-cuff theory here. What you are seeing is an artifact of the slowing household formation which in turn stems from slower population growth a few decades prior.<br /><br />This has the general effect of reducing the contribution of housing and consumer durables to GDP as new households "tool-up" so to speak. The result is there is less booming associated with strong economic conditions: rapid job growth and relatively loose monetary policy.<br /><br />It also leading to less investment in schools and teachers which slows government expenditure.<br /><br />Just riffing here but maybe we could think of a simple growth model in which in n falls. I feel like d should fall to because of some compositonal effects but I don't have that worked out yet so lets just stick with n.<br /><br />Now suppose that recessions are periods in which capital formation is constrained. Then in because n is lower the rise in MPK due to a recession is much lower. Thus the investment boom is greatly ameliorated. Karlhttps://www.blogger.com/profile/03866579794470469848noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-68848355585290726492018-02-19T14:42:59.161-08:002018-02-19T14:42:59.161-08:00and having secured political power in an era of 4%...and having secured political power in an era of 4% unemployment, abandoning one's opposition to deficits might represent a similar form of wisdomeightnine2718281828mu5noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-41565902790252498802018-02-19T13:58:37.348-08:002018-02-19T13:58:37.348-08:00---
The most striking aspect of this diagram is th...---<br />The most striking aspect of this diagram is the collapse government spending in the immediate aftermath of the Great Recession. One can't help but wonder about the wisdom of such policy during such a period of economic weakness<br />---<br /><br />if the primary goal is effecting a transfer of political power to one's cronies, there's a certain wisdom in crippling the economy.<br /><br />one might even go so far as to enlist the services of sympathetic foreign oligarchs.eightnine2718281828mu5noreply@blogger.com