Watching the Craziness

I have not posted in a while. I am watching the craziness as Trump turns the economy against the general population.

From what I see, inequality will grow... and importantly, negative externalities will grow and accumulate. Businesses will make more profit in the short-term, but in the medium-term, the negative externalities will burden the economy.

I still expect a recession this year in 2017.

Comments

[Canuck Civil Servant]

Very interesting, and consistent with what a number of leading heterodox economists are saying, and then there is the 11-year "rule." I have nothing but admiration for your approach, but, intuitively (and I am really just a dabbler), it is not clear to me that effective demand cannot be sustained for a slightly longer period through a combination of financial innovations/fraud, which give an impression that greater capital utilization is still possible (i.e. for a period it is possible to be at a point beyond the effective demand frontier, rather like over-harvesting a natural resource beyond the PPF).

For instance, I suspect that had one applied your equation in 2005, one might have arrived at a similar conclusion, but it took another couple of years for the downturn to occur. I propose that your equation represents almost an accounting identity, but, (at the margin -- I mean where capital nears optimal utilization) a confidence fairy does exist. What will be the trigger for recession? Maybe blowback from housing crashes in peripheral economies like Canada, Australia, Norway etc., who until recently were insulated by a resource boom?

[Edward Lambert]

Hello Canuck Civil Servant,
It is appearing that the trigger will be tight monetary conditions. The Fed is consistently avoiding that this business cycle. I still see the mon. conditions as accommodative.
So maybe another trigger that is geo political, but I do not see a trigger yet.