From a five-minute video you can see at Lars P. Syll... naked capitalism... heteconomist... EconoMonitor...
Syll says "Just watch it", but I can't. I have to say something. When I see something wrong, I have to say something. Don't you?
Here's a snapshot from the video:
Third item on the lists says there was a change from "wage-led growth" to "debt-led growth". I have trouble with that. It suggests new borrowing grew significantly faster in the later period. But that's not correct.
Back in March, at New Left Project, Andrew Kliman evaluated Sam Gindin's take on the global economic crisis. Kliman wrote:
According to Gindin, workers’ incomes stagnated as their wages declined or grew slowly. This not only boosted profits but also contributed substantially to the growth of the financial sector as workers became 'dependent on credit' in order to keep their standard of living from falling. In particular, they 'came to depend heavily on their homes as collateral for borrowings.'
However, although Gindin cites a lot of data elsewhere in his article, almost no hard evidence accompanies this account of capitalism under 'neoliberalism,' and the hard evidence fails to support much of it. Since something like this account has become conventional wisdom among much of the Left, it is important to review the facts in detail.
According to Kliman, the "conventional wisdom" is not correct. He says
the share of personal consumption spending funded by consumer credit––i.e. all household borrowing except for home mortgages––did not rise over time. In other words, consumption did not increasingly come to depend on consumer credit.
Consumption did not increasingly come to depend on consumer credit.
That assertion of Kliman's stopped me cold the first time I read his article. It should make you stop, too. It should make you second guess yourself, as it did me.
Well, maybe you don't like second guessing yourself. But I'm pretty sure you do like this: the Fisher Dynamics of household debt. As Mark Thoma said,
this research knocks a hole in the story that it was lack of self control ... that caused the increase in household debt prior to the financial crisis
When Thoma says it wasn't a lack of self-control, he means it wasn't increased borrowing that caused debt to increase. At Thoma's link, JW Mason summarizes the research:
It’s a well-known fact that household debt has exploded in recent decades, rising from 50 percent of GDP in 1980 to over 100 percent on the eve of the Great Recession. It’s also well-known that household borrowing has increased sharply over this period. ... In fact, though,... while the first [of these] is certainly true, the second is not.
Mason says the same thing as Kliman: We think consumption increasingly came to depend on credit since 1980, but that's not correct.
Now you have to stop and think.
Now you have to take a step back from the conventional wisdom. Doesn't matter how cute that five-minute video was.
We have to get this right.
Debt grew faster after 1980 than before, not because of an increase in borrowing, but because of the disinflation.