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In The Financial Crisis Reconsidered, Aronoff challenges the
conventional view that reckless credit produced the US housing boom
and the financial crisis, explaining how the large current account
deficit, and its mercantilist origin, was a more fundamental cause.
He also demonstrates that the decision to provide relief for bank
creditors rather than underwater homeowners was responsible for the
prolonged recession that followed the crisis. Aronoff proposes a
novel theory to account for the ultimate origins of secular
stagnation and economic volatility. He shows how accumulation,
which occurs when a person or country earns more than it ever plans
to spend, generates both an excess of saving and a deficiency in
demand. While savings provide the funds to promote booms,
under-consumption ensures that these booms will turn bust and that
the economy will fall short of its potential growth rate. Aronoff
argues that mercantilists and top income earners engage in
accumulation, and that the influence of both types has grown in
recent decades. Combining economic theory and historical narrative,
this book offers a new perspective of the housing boom and the
financial crisis, concluding with innovative policy proposals to
reduce accumulation without compromising the benefits of a market
economy.
Thomas Malthus identified a crucial tension at the heart of a
market economy: While an accumulation of wealth is necessary to
provide the capital investment needed to generate growth, too much
accumulation will cause planned saving to exceed profitable
investment, which will result in secular stagnation, a condition of
low growth and underemployment of resources. Keynes drew
inspiration from Malthus in his attempt to comprehend the causes of
the Great Depression of the 1930s. Now, Aronoff demonstrates how a
related but slightly different aspect of Malthus' thought can
illuminate one of the most pressing issues of our times. In A
Theory of Accumulation and Secular Stagnation, Aronoff explores
Malthus' ideas relating to secular stagnation and uses the insight
gained to understand the origins of the subpar growth and tepid
employment, periodically punctuated by booms, that has plagued the
US economy since the turn of the millennium. He explains how the
rise of mercantilism among Asian countries - principally China -
and increased income concentration generated an upsurge in excess
saving. This accumulation created a chronic deficiency in demand
while also depressing interest rates, which generated a search for
yield that fuelled periodic booms.
In The Financial Crisis Reconsidered, Aronoff challenges the
conventional view that reckless credit produced the US housing boom
and the financial crisis, explaining how the large current account
deficit, and its mercantilist origin, was a more fundamental cause.
He also demonstrates that the decision to provide relief for bank
creditors rather than underwater homeowners was responsible for the
prolonged recession that followed the crisis. Aronoff proposes a
novel theory to account for the ultimate origins of secular
stagnation and economic volatility. He shows how accumulation,
which occurs when a person or country earns more than it ever plans
to spend, generates both an excess of saving and a deficiency in
demand. While savings provide the funds to promote booms,
under-consumption ensures that these booms will turn bust and that
the economy will fall short of its potential growth rate. Aronoff
argues that mercantilists and top income earners engage in
accumulation, and that the influence of both types has grown in
recent decades. Combining economic theory and historical narrative,
this book offers a new perspective of the housing boom and the
financial crisis, concluding with innovative policy proposals to
reduce accumulation without compromising the benefits of a market
economy.
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