Pieria View

The Telegraph's Jeremy Warner has written a piece questioning whether the story about corporate cash hoarding holding back an economic recovery in the UK stands up to scrutiny. Although he acknowledges that corporates have been steadily increasing their reserves over recent years he suggested this trend may not suggest that there is a tsunami of  investment waiting in the wings . According to the ONS total cash reserves held on private non-financial company balance sheets accounted for £672 billion in the third quarter of last year, but Warner claims the figure is only " £50bn higher than they were before the crisis began and hardly enough to explain the great “compensating” leap in public indebtedness". He goes on to say that the evidence for this being purely a reaction to the crisis and therefore easily reversible is not as strong as many, including members of the Coalition government, have suggested. Rather than a response to short-term uncertainty higher cash

In my latest feature " The price of safety ", co-written with Frances Coppola, we take a look at an issue I have been closely following over the past few years - the economic impact of corporate cash hoarding. To my mind the story is a crucial one to help explain why more than five years since the start of the financial crisis Western economies are still struggling to achieve meaningful growth. For me the key to understanding this point is an appreciation of sectoral balances. The concept was eloquently summarised by Martin Wolf in 2011 : "If the government wishes to cut its deficits, other sectors must save less. The questions are 'which ones' and 'how'. What the government has not admitted is that the only actors able to save less now are corporations." Since the onset of the crisis executives of cash-rich firms (along with a number of commentators) have argued that they have good reason to build up capital buffers. Macro threats such

Usually I try to avoid engaging in spats on social media – they’re time consuming and invariably end up with both sides all the more convinced of their original positions. Nevertheless last weekend I  found myself engaged in one  with Ryan Bourne of the Centre for Policy Studies over a  recent post on ConservativeHome  by Andrew Lilico. In it Lilico claimed that the very idea that government transfers could boost aggregate demand and, as a consequence, GDP is a “fallacy”. He writes (emphasis mine): “The naive idea behind this is the intuition that if people spend more of their money, rather than saving it, that will boost growth.  Except that's just wrong.   In orthodox macroeconomic models, money that isn't consumed is invested.  And investment boosts GDP as well as consumption.   So when the economy is operating properly, even if we could costlessly transfer money from high savers to high consumers and would not distort their incentives by doing so, there would be

So over the past few days I’ve found myself in two debates over the impact of automation on jobs with the New Statesman’s  Alex Hern  and the inimitable  Frances Coppola . In both I wanted to discuss the demand impact of automation, which has thus far been largely ignored in the “robots ate my job” discussion. Basically my point is that the consequences of high unemployment on demand would ultimately be enough to offset the case for automation. Or looked at another way, businesses might choose to retain employees even if the cost per unit is higher than with an automated alternative. For me, this has important implications. In the short term the fear of demand destruction is likely to do little to dissuade individual businesses from trying to increase productivity through automation – so some of the fears about job destruction are at least theoretically justified. In the longer term, however, the costs of rising unemployment should help to erode profit margins faster t

This post is written jointly with Frances Coppola. I have been re-reading Irving Fisher's "Debt deflation" [1] . Short and immensely readable, it remains one of the best explanations of financial crashes and depression in economics literature. But I am puzzled. What is going on at the moment doesn't quite fit, somehow. On the face of it, much of what has happened over the last six years fits all too well with Fisher's description of debt deflation. He identifies two prime causes of booms and busts - what he calls the "debt disease" and the "dollar disease". Over-indebtedness before the crash results in debt deflation after the crash - the "debt disease". And shortage of money in circulation leads to apparent over-production and crashing prices - the "dollar disease". The disastrous deflationary spiral experienced by the US in the Great Depression, and by several Eurozone countries at present, can be adequately exp

There is a growing trend, particularly among US economic commentators and bloggers, to stress the importance of the policy choices facing central bankers. While monetary policymakers will undoubtedly be crucial in achieving and sustaining an economic recovery, ignoring the impact of fiscal policy choices on fear-driven economies is wrongheaded. Of course, many will argue that it was ever thus. Writing on the CrookedTimber blog, John Quiggin explains (emphasis mine): “Clearly there was a consensus as of early 2008. The differences between “saltwater” (former New Keynesian) and “freshwater” (former New Classical/Real Business Cycle) economists had blurred to the point of invisibility. Everyone agreed that the core business of macroeconomic management should be handled by central banks using interest rate adjustments to meet inflation targets. In the background, central banks were assumed to use a Taylor rule to keep both inflation rates and the growth rate of output near the