economics

Allowing for these cautions, we may derive endless instruction from the economic analysis of the past. We observe that the invading barbarians found Rome weak because the agricultural population which had formerly supplied the legions with hardy and patriotic warriors fighting for land had been replaced by slaves laboring listlessly on vast farms

I argue that they are both necessarily caused by institutions and policy, whether these are policies and institutional frameworks in the deficit countries, policies and institutional frameworks in the surplus countries, or both.

Because it will be almost impossible to do these quickly, as a stopgap countries with productive investment opportunities must seize the initiative in a global New Deal to keep demand high as the structural distortions that force up the global savings rate are worked out.

The first is our best-case scenario, although for the reasons I have noted it is unlikely to describe conditions today, especially in capital-rich countries like the U.S. The second and third ways are unsustainable because they actually destroy value by increasing debt faster than they increase debt-servicing capacity.

Breaking of Old Norms: After decades of disinflation, markets and policymakers developed a set of beliefs, tools, and expectations fitted to low and stable inflation. If a structural shift occurs, these old mental models no longer apply, making it harder to control or predict rising inflation.

o Behavioral and Market Sentiment Changes: As inflation

Back during the March 2020 sharp stock market crash, investors initially fled into bonds as one would expect in a risk-off crisis, meaning that bond yields went down and bond prices went up. But then as the dollar index spiked, the crisis became bad enough that there became a large number of forced sellers of bonds in order to get dollars and

The budget deficit stimulates the economy. Without it, the recovery could not have been as fast and vigorous as it turned out to be. The recovery, combined with high interest rates and the influx of foreign capital, tends to keep the dollar strong. The recovery, combined with a high exchange rate, tends to suck in imports and create a trade

If China exports less capital, its trade surplus will decline. This is an arithmetical necessity.

In the real world, of course, financial assets grow over time as well. Figure 5, above, shows what the distribution of total assets would be like after one year in the hypothetical case where each category of financial asset has grown in proportion to the increase in net worth.

The stock of equities increases, for example, because owners of firms