The thing that is different, of course, is demand is weak. We do have excess capacity in the short run, so it is a tough environment for companies. But if you believe the economy is just facing a cyclical problem, not a structural problem, that will change. Isn't it interesting how you can have people worried about deflation and a housing bubble at the same time?
"demand is weak"
not sure if we are here, but i think this is a plausible explanation for the seemingly incongruent concerns over deflation and a housing bubble (that being generational interest rate lows creating a bubble in housing demand while manufactured goods, some services and certainly incomes are falling and pointing toward deflation concerns)
auburn.edu
Mainstream theory distinguishes between broadly conceived structural unemployment (a mismatch of job openings and job applicants) and cyclical unemployment (a decrease in job openings). In the Austrian view, cyclical unemployment is, at least initially, a particular kind of structural unemployment: the credit-induced restructuring of capital has created too many jobs in the early stages of production. A relatively high level of unemployment ushered in by the bust involves workers whose subsequent employment prospects depend on reversing the credit-induced capital restructuring.
The Austrian theory allows for the possibility that while malinvested capital is being liquidated and reabsorbed elsewhere in the economy's intertemporal capital structure, unemployment can increase dramatically as reduced incomes and reduced spending feed upon one another. The self-aggravating contraction of economic activity was designated as a "secondary deflation" by the Austrians to distinguish it from the structural maladjustment that, in their view, is the primary problem. By contrast, mainstream theories, which ignore the intertemporal capital structure, deal exclusively with the downward spiral. |
