2016-03-29

The Case for Depression: Friedman's Plucking Model

Here's the really bearish view of the US economy: it is turning Japanese. Instead of working back to positive trend growth, trend growth is flat-to-negative in the long-run as the economic base is consumed.

Charts from Alhambra. Lots of discussion and explanation there: Durable Goods May Not Actually Show Recession, And That Is The Worst Case

Milton Friedman's "plucking model" is an interesting alternative to the natural rate of output view of the world. The typical view of business cycles is one where the economy varies around a trend value (the trend can vary over time also). Milton Friedman has a different story. In Friedman's model, output moves along a ceiling value, the full employment value, and is occasionally plucked downward through a negative demand shock
Economists's View: New Support for Friedman's Plucking Model

An earlier article on the plucking model: Friedman's "Plucking Model"

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