Wednesday, February 13, 2013

Borio, Brenner, and the Result of Excessive Financialization

Borio writes:

financial-cycle information also helps construct real-time estimates of sustainable output that, compared with traditional potential output estimates, are much more reliable in real time, and more statistically precise... Such estimates, for instance, would have shown that, during the boom that preceded the Great Financial Crisis, output in the US was growing well beyond sustainable levels.

See where he's going with this? In the years between the Fall of the Towers and the financial crisis, output was unsustainably high.

Unsustainably high. For contrast, here's Robert Brenner:

Economic performance in the U.S., Western Europe, and Japan has steadily deteriorated, business cycle by business cycle... Most telling, the business cycle that just ended, from 2001 through 2007, was -- by far -- the weakest of the postwar period...

In the weakest business cycle of the postwar period, output was unsustainably high.

Graph #2: Employment (log scale) Since 2001 in Red

Oh, I believe it. Both things are true, Borio's unsustainable growth, and Brenner's crappy growth. That is the problem, isn't it? These days, we can't even sustain crappy growth.

A four-part series on Claudio Borio's VOX article started yesterday

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