A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Thursday, December 6, 2012

Transcript: Dueling Forecasts plus some Steve Keen

Forecast December continues today with Paul Ballew of Dun & Bradstreet, leading the force making bold predictions for 1% growth in Q4 2012.

How helpful is it to forecast Q4 2012 in the middle of December? Yet the numbers are bouncing around even today. And the most often heard comment about next year is, "It all depends on Congress adn the fiscal cliff." A government who could do nothing right because of overspending is in danger of being so stupid as not to continue. Or spend now and borrow it from Social Security in the future.
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The Demand Side Forecast is bouncing along the bottom. We're going to get it out right now and dust it off. Oh yeah, negative numbers in Q4 2012. We issued that in ... well, a long time ago ... the date is a little smudgy here. Mimeo paper, you know.

What is the Demand Side premise? That the economy is driven from the demand side, a capitalist market economy is constrained by demand, what is demanded is what is produced. Private demand – effective demand – arises from incomes and from borrowing, or credit. Public sector demand arises from incomes, that is, tax revenues, from borrowing, or just purchasing goods and services.

So when incomes are falling, credit is contracting, debt service absorbing incomes, and government purchases of goods and services weakening, we re going down. Current huge deficits are supporting private demand. Absent investment, there is no growth, nor possibility of growth. And we're talking public investment, because aside from some parts of the technology industry, we have over-capacity in the private sector, and no good reason to invest.

And where would we be without the incomes associated with Social Security and Medicare providing a base of demand? These are not contributing to the current deficit, but are supporting private demand, just like the tax cuts.

Notably absent from the Demand Side analysis is an appreciation for the health of the big capitalist firms. By all accounts they are flush with cash and simply waiting on the sidelines. We'll get a sense of that from Mr. Ballew in just a moment. But what are they waiting for? Balance sheets have never been healthier. Lean and mean.

to our mind this is proof positive that profit does not mean optimal economic outcomes. These companies achieved and maintained their pristine balance sheets by cutting workforces, downsizing operations and squeezing suppliers. All of which constricted demand. It was their feverish pursuit of profit to the exclusion of their stakeholders' interests that created such a sharp decline. It has been the role of government and social insurance to keep that decline from being more miserable than it already is. And it's plenty miserable. A lost generation if the current policies are followed mindlessly to their conclusions.

So ... we'll roll out the next biennial Demand Side forecast on January 1, but look for it to keep leverage to the downside vis-a-vis other forecasts. The current policy debate is between the Reagan Republicans led by Tim Geithner and the Old Guard Republicans led by John Boenher, and it promises very little in the way of positive outcomes.

Now, here, from Paul Ballew


Not last year's view from D&B, and it doesn't sound like growth, this crawl-stagger-crawl. Sounds like bouncing along a bottom.


We take our point, crawl stagger crawl economy equals cost-cutting, efficiencies, and productivity


And small businesses are getting squeezed by lowering demand from consumers and cutbacks from big firms and government to whom they may be suppliers, and possibly because they cannot lay off the workforce, because they are the owners.


Ah, Mike McKee jumps in with the conventional wisdom, or conventional ignorance, that somehow it is Social Security and Medicare that are causing the current economic woes, kind of a time vortex thing, coming back from the future. But it's not really slack demand, no investment and big unemployment that are making people miserable, it is the failure to insist that people in 2025 work two more years before qualifying for Medicare.


It's just sad that this passes for analysis.


Demand Side wakes up. Deleveraging! Could it be that the enormous private debt bubble and bust is instead at the root. Makes sense from the demand side. Any time you go through this, as in any time Wall Street collapses, the ramifications tend to be long term. Granted. It is Demand Side's view, however, that any time you have such a situation, you need to fix or things never get better, no matter how long you wait. And you don't fix it by sacrificing the middle class.

But let's look at somebody who knows better about deleveraging..

Here is Steve Keen briefing Congress. We have bad audio, so we didn't put up more, but you can get it on the transcript. The whole 45 minutes is there on YouTube, plus the link to Steve's site and the rest.


Today's podcast brought to you by Demand Side, the book, find it at DemandSideBooks dot com.


  1. Why in the world are business schools so focused on teaching Supply Side thinking? And when asked, why do so many professors figure out ways to dodge the issue? (In my experience, of course)

    1. A good question. Here is a piece which asks similar questions and looks at reform of economics education.

    2. Imagine “if universities continued to use for nuclear engineering a textbook by an engineer who had headed a team managing a nuclear power plant that without external causes exploded creating a huge devastation, there would be a public outcry” (Fullbrook 2009, p. 22).

      Or imagine the outbreak of a disease, an epidemic, that caught the medical profession unaware, with most of the profession (and textbooks) fastidiously denying the epidemic’s possibility. Wouldn’t there be public outrage? An enraged demand to hold the profession accountable?

      Why is such a similar situation tolerated in economics? Why isn’t there a public effort to disbar economists who continue to teach such failed policies? Why isn’t there an effort to de-commission the universities that grant such degrees? Why isn’t there a detailed public hearing to ascertain what is taught in economics courses and published in economics textbooks?