You have argued before that without the "multiplier" that loans allow, capital investment would be possibly less than 1/10 what it is today, but we would also avoid the defaults that pop bubbles and bring about recessions.
Ergo, the solution to bubbles popping and bringing about recessions is to institute a system that is permanently in recession?
It sounds like the problem is more like the lack of a strong progressive income tax and a capital gains tax structure tiered by the length of time the asset was owned. Reduce the exorbitant individual rewards for the behavior that is rationalised by "keeping up with the Joneses" and both the rationaliser and "the Joneses" are less likely to be engaged in that behavior. Utsukushikereba sore de ii
You can attenuate the business cycle and obtain steady growth (though possibly at a lower average rate than the average with boom-bust business cycles), and you should also be able to attenuate asset bubbles with steady asset appreciation (though possibly at a lower average rate). Bush is a symptom, not the disease.
If you have a complex, interconnected, unsynchronised system, its going to run in cycles. The important thing in a sustainable economy is to provide a job guarantee to those who are out of work at the moment because of inadequate aggregate demand, and to take advantage of downturns in economic activity to find and clean up messes being made.
On the other hand, I expect that most asset bubbles could be curtailed if people wanted to ... its just that you have to act during the period when it looks like the asset bubble is creating wealth from thin air, and nobody wants to stop the illusion of something from nothing until they've had a chance to get theirs. People start making noises about "fixing" an asset bubble at the point when its becoming clear that the bubble's going to pop sooner or later, and by that time there are large numbers who have bought assets where the purchase is only viable if the price trend keeps going up ... at which point the damage has already been stored up, with the tally of the damage just waiting on the popping of the bubble. Utsukushikereba sore de ii
Oh, I agree. My personal favourite explanation of the business cycle is delayed feedback. Bush is a symptom, not the disease.
If you remove that taxation you'll get your fake boom, and blow off a few bubbles that will inflate the cycle even further.
But a crash becomes inevitable because wealth acquisition spawns a positive feedback loop that rapidly concentrates all of the liquidity in a few locations and stops it circulating elsewhere.
Effectively you get a real sclerotic economy where money simply stops circulating.
Gosh, the neoliberals must love their recessions deep and hard, they fight so hard against the shock absorbers. Utsukushikereba sore de ii
