David B. Shemano wrote: > It seems to me that the present crisis was not caused by restricted > consumption, but overconsumption -- the masses leveraged themselves to > consume goods and services they could not otherwise afford. If I am right > (and you are obviously free to dispute my view), how does the present crises > square with your underconsumption theory?
The standard underconsumption theory starts with the case where no consumer credit is available. Given stagnant wages & (medium-to-low level) salaries, the theory points to stagnant consumer demand and (here's the underconsumptionist leap) thus stagnant GDP. This scenario didn't happen -- despite stagnant wages -- because the U.S. and world financial systems went bananas and provided consumer credit in extra-large dollops (home equity loans, etc.) based on a speculative housing bubble. This extension of consumer credit delayed the stagnant consumer demand -- and now it's hitting with a vengeance. In addition, all of the accumulated debt combines with falling asset prices to imply that there are major imbalances in both the financial system and the "real" economy that will delay recovery for a few years if not longer. Of course, those evil government types are trying to speed up the recovery, catering to the wishes of the unwashed rather than letting nature take its course (following the advice of Andrew Mellon to "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate") so that the economy can recover naturally. They are also catering to the bankers and other financiers who got themselves and the economy into so much grievous trouble. These efforts may or may not change the revised underconsumption scenario of my second paragraph. -- Jim Devine / "Disbelief in magic can force a poor soul into believing in government and business." -- Tom Robbins _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
