Say “Goodbye!” Pre-crisis trend

There is a pleasant myth of the business cycle. All of this – only the fluctuations around the underlying trend. Production during the boom was even higher sustainable level. During a recession, this figure was below the level. The budget deficit in a phase of decline can be and should be offset by surpluses accumulated in the boom years. Regardless of whether optimistic or pessimistic you are tuned in the context of stabilization policies, they exist in their own sphere and economic policies can focus on measures of “supply side”.

Unfortunately, this is quite symmetrical image belied by the facts. There is a widespread view that the damage caused during a recession, associated with the financial crisis, tends to be twice as much during the traditional recession. More important is the conclusion that most of the losses in production during the recession is permanent and that the economy will never return to its old trend line. These findings have been demonstrated in some detail by the late Christopher Dow (Christopher Dow) in his study “The primary recession,” which was published in 1998. Although some research has been thorough and fundamental, with today’s macro-economy has little correlated. Latest world economic outlook the IMF has already appeared, however, have something to accuse him, it concerns the fourth chapter, which, unfortunately, only available on the Internet.

The authors of the report, the IMF estimated that the output from the financial crisis remains at 10% below trend in the medium term, which is defined as seven years. Of course, this average with a tolerance on both sides. In Chile, since 1981 and in Mexico, since 1994, output grew much faster than the previous trend, whereas after 1997 in Japan, growth has stagnated for many years. Average score may exaggerate the impression of sustained loss of production capacities. This may be due to prolonged effects of the recession, which would require more than seven years to completely disappear. UK Treasury provides a permanent loss in the economy of 5% of GDP.

Countries that are currently in the midst of a banking crisis, in the amount accounted for half of real GDP of all developed countries. This is equivalent to the GDP of about $ 40,000 bn (€ 27,050 bn, £ 24,440 bn) for the year. If we apply the 5% underestimation in terms of production, the future hole in the world economy of up to $ 2,000 billion, that is little consolation, because, according to the IMF, the economy, which allow for counter-cyclical fiscal and monetary stimulus in the short term to mitigate the slowdown in the aftermath of the crisis, as tend to experience less decline in the medium term. “

Interestingly enough, these studies show a possible return to pre-crisis growth rate with a lower level. I can not help but notice that it is a very convenient result for the politicians, because they are blamed for the causes of the crisis, and the output of the recovery phase is intended to be the return of new, even lower trend, resulting in them will be difficult to clearly blame insufficient growth .

A detailed analysis of the IMF suggests that the higher structural unemployment, slower accumulation of capital and lower productivity growth played an important role in explaining long-term decline in output since the financial crisis. National Institute of Great Britain primarily emphasizes a high price for risk, which may increase the actual cost of capital, resulting in higher commissions for the purchase of shares on the stock market.

But I’m not quite sure. Based on the vision of Keynes, which is set out in the last few chapters of his general theory, there is a persistent tendency for savings in connection with the natural excess of investment opportunities and, therefore, full employment is achieved, in rare cases, such as wartime or at the peak of the boom. According to this analysis, no need to explain the loss in production during the collapse, but unstable, high levels that preceded it. That is why Keynes advocated the preservation of low interest rates in order to alleviate the stagnant trend. This picture is not possible in the postwar decades, but may come into its own now, with the emergence of chronic surpluses of Asian economies.

If China and other countries are chronic “savers” who can be “sverhzaemschikami? Over the years they have been consumers of “Anglo-Saxon” model of the economy. But even if there was no banking crisis, sooner or later they would have to face the prudential limits of their debt levels as a result, only the public authorities will take out loans. The proposals enunciated kinds of money can cause dissatisfaction of the authorities that they do so on their own. But the right approach may be at St. Augustine: “It will make me virtuous, but not now” – where “not now”, which is still a very long time.

The Financial Times
October 29