Watch it here, where ‘it’ is the event CBPP ran yesterday for our full employment project. Ben Bernanke–now a fellow blogger(!)–gave a great keynote speech wherein he made a connection that I view as very important: adding an international dimension to the secular stagnation discussion.
After Ben B speaks, there’s a panel where Valerie Wilson, Andy Levin, and Maurice Emsellem all present important papers, which you can find here. Read them now!
As OTE’ers will note, I’ve often stressed the drag on growth from our persistent and sizable US trade deficits. And, importantly, as Bernanke pointed out in his earlier work, these deficits are not the result of profligate American over-consuming, but the outcome of excess savings in trade surplus countries who buy dollar reserves to gain a price advantage in export markets.
(See here for an explanation of these dynamics but I’ve got a longer post working on this, out soon:
“When a country wants to boost its exports by making them cheaper using the aforementioned process, its central bank accumulates currency from countries that issue reserves. To support this process, these countries suppress their consumption and boost their national savings. Since global accounts must balance, when “currency accumulators” save more and consume less than they produce, other countries — “currency issuers,” like the United States — must save less and consume more than they produce (i.e., run trade deficits).
This means that Americans alone do not determine their rates of savings and consumption. Think of an open, global economy as having one huge, aggregated amount of income that must all be consumed, saved or invested. That means individual countries must adjust to one another. If trade surplus countries suppress their own consumption and use their excess savings to accumulate dollars, trade deficit countries must absorb those excess savings to finance their excess consumption or investment.”)
I don’t have time to go through all the details of Bernanke’s talk but here’s a quick way to understand part of his value added to the secular stagnation discussion. When Larry Summers first put sec stag back on the map, as an example of the problem, he used the fact that even with a big bubble and very cheap money, demand in the 2000s was nothing special: “even a great bubble wasn’t enough to produce any excess in aggregate demand.”
Bernanke pointed out that the large trade deficits/GDP in those years are an important answer to why aggregate demand was constrained (the average deficit/GDP, 2000-10, was an historically large -4.3%).
Bernanke’s other interesting point: while China is less active in suppressing consumption, increasing savings, buying dollar reserves, and importing demand for abroad (ie, they’re doing more internal investment), Europe, especially Germany, has developed their own “savings glut” with similar impacts.
More to come, especially as I plumb some of the implications of the some of the other papers from the event.
Oh, and as noted above, Bernanke’s got a new blog
! Very cool development in our world and I’m sure I’ll be amplifying much of what he’s thinking about.