"Izzy"

I was so impressed by the "paint in a barrel" clip (see yesterday's post) that I started out thinking Izabella Kaminska had written something good for once. It didn't last.

Kaminska writes:

Before we explore the degree to which history is repeating itself, we’d like to explain our position on the story to date. (And for ‘we’ it’s fair to read Izzy.)

 

Go Izzy!

You see, contrary to popular belief, our working theory is that the crisis results as much from the conjoined effects of a suddenly over-abundant and over-productive world (on account of technology advances) — something which has been exacerbated by a shortage of safe assets, credit and money relative to goods available — as it does from credit profligacy in the mid-naughties.

 

So, Izzy says the cause of the crisis was equal parts sudden over production and credit profligacy in the mid-naughties.

In that sense, we believe that the credit binge, rather than being the ultimate cause of the crisis, was possibly only one of its symptoms.

 

Oh, so then *NOT* equal parts. The credit profligacy was only a symptom. That leaves just the sudden over-production -- one of the classic explanations of the slump.

We postulate that in an over-productive economy it’s natural for return on capital to be extinguished, since the presence of a persistent output gap forces prices of goods and services towards the cost of production. Indeed, if prices fall below the cost of production for a significant period of time, output of both products and resources must be cutback on a permanent basis — usually against corporate interests and at the cost of real jobs.

 

Wow! She gets through that whole thing without once using the word "profit". Well, yeah. Her argument is that profit is too low. She explains, quite rightly I think, that our ability to produce more than we can afford to consume -- "a persistent output gap" -- drives prices down, squeezing the life out of profits.

She does not say it clearly, perhaps because a large part of her audience thinks profits are already far too high.