Well then let me clarify this point. Coercion, per se, is not wrong according to libertarians. It is coercion against individuals who have not harmed you. Coercion in self defense or in the punishing of a legitimate crime (where there is a victim of aggression) is completely justified in a libertarian society.
This is certainly not imposes something new on society. In every existing nation on earth practically, there is the belief that murder should be a crime, stealing should be a crime, rape should be a crime. And those are crimes currently in this society.
So a libertarian is not adding anything new. We are simply removing all the unjust laws and the acts of aggression against peaceful individuals who have not violated the rights of others. So it really is a system of subtraction rather than adding on.
And as another posted has stated, if a group of communists want to “secede” and form their own collective with their own concept of property and so forth, they are free to do so but they CANNOT force their conception on anyone else.
If you are attempting to paint libertarians as hypocritical on the issue of coercion, you just don’t understand the libertarian position very well.
Life used to be shit for most people in general in the past. But how can you possible make a connection that our improved quality of life is due to government action rather than the inevitable march of human progress?
I don’t have time at this moment to go through every single of your responses but this one jumped out at me.
**" In 2002, economist Paul Krugman, who would go on to win a Nobel Prize in 2008, advised that the Fed “create a housing bubble to replace the Nasdaq bubble.” In his view, this would allow “soaring household spending to offset moribund business investment.” (Krugman began warning that the housing bubble was dangerous in 2005.)
We now have extensive evidence that the wanton borrowing that fueled the recent housing bubble made the economy vulnerable to the devastating downturn the U.S. endured. This shouldn’t have been surprising. After studying every business cycle experienced by 14 rich countries since 1870, Oscar Jorda, Moritz Schularick and Alan Taylor found that excessive private credit growth systematically predicts deeper downturns and slower recoveries.
Back in the 2000s, however, most people just wanted to get out of the funk associated with the aftermath of the tech boom. There was also a widespread belief that bubbles aren’t dangerous as long as the central bank is around to “clean up” the mess when they burst. This view was best articulated by Ben Bernanke in 1999. As a result, many monetary policymakers were untroubled by the prospect of creating a new bubble to replace the old one."
**
This has been widely reported. So you should admit that I am absolutely historically accurate in my statement here. You said you knew for a “fact” that I was full of shit. Well, given this example, it doesn’t say much for your ability to discern truth from fiction if your “facts” turn out to be demonstrably false with a twenty second Google search yielding a dozen sources that contradict your claim.
More sources:
What do you say in the face of overwhelming evidence?
Then you quote Paul “lets create a housing bubble to replace the tech bubble” Krugman as some sort of authority on the reality of fiscal policy.
Krugman is playing some games here. He is not talking about total spending, or increases in the National Debt or even years of a balanced budget. He is talking about “spending as a share of potential GDP” which is irrelevant to the argument I am making.
What I am saying is that Keynes point about counter cyclical spending was that lest government spending and deficit financing get out of control and lead to long term problems, during the “good times” we should do our best to balance the budget and pay down the debt we accumulated during the economic downturns.
We never have done that. The last time our government actually cut spending (meaning a budget that is smaller that the previous year) was after World War II when all those resources were freed up and we didn’t have to spend money on tanks and bombs and so forth. Since then it has been ever increasing debts and deficits and no fiscal restraint during periods of prosperity.
Why should Keynes have been so naive to think that politicians had either the wisdom or the courage to cut back spending and act responsibly if they always are looking to get reelected and have a money printing machine at their disposal?
Well, he SHOULD have known better and this is just another example of why John Maynord Keynes was a lousy economist.
Raising interest rates would bring on a severe downturn. You are correct as far as that goes. But it would clear the market. We need to deflate the housing bubble not reinflate it or replace it with another bubble.
As far as liquidity traps are concerned, read up on “The Liquidity Trap Myth”:
**It is highly unfortunate that the Keynesian ideas have dominated the monetary and fiscal policies pursued in Japan during the period under scrutiny, including interest cuts down to zero, serious monetary pumping and assorted fiscal measures. It should come as no surprise to the reader that these policy measures have utterly failed. But as I argue in a recent report (Johnsson 2003), these Keynesian measures were not only ineffective, and not only worsened things, but even managed to turn a favorable development of the mid 1990’s around. The end result of these Keynesian monetary and fiscal policies was exactly the terrible situation one perceived one was combating!
The Keynesian policy measures will not work in the future either, despite the advice of Neo-Keynesians like Nobel laureate and former World Bank chief economist Joseph Stiglitz or popular economist Paul Krugman.[9] Keynes wrote in the preface to his General Theory that “I cannot achieve my object of persuading economists to re-examine critically certain of their basic assumptions except by a highly abstract argument and by much controversy.”
He ends the same preface by stating that “[t]he difficulty lies, not in the new ideas, but in escaping the old ones.” Maybe these words have taken on a new meaning, this time meaning that it is Keynes’ own ideas we have to escape? Or as Reisman (1996) puts it: “The Keynesian analysis is so wrong that it is beyond redemption. The one, fundamental change that is needed is its total abandonment.”**
So libertarians are allowed to impose their views on private property on other people. But communists are not allowed to impose their views on private property on other people.
Why?
Now my system has an answer for that question. What’s your system’s answer?
The already existing corporations wouldn’t let them. And they’d have all the power, because in your scenario the government doesn’t.
The power of the corporations that in your setup would have control both of them and society in general. They’ll buy what they are told and work for the wages they are offered at the jobs they are ordered to take. And if they try to fight back then and only then will your government step in and crush them for fighting back.
It’s neither untrue nor unfounded, it’s based on history. That’s exactly the sort of thing that happened when government was weak and corporations were strong, the situation you want to recreate.
And note that that’s the optimistic version, where society doesn’t outright collapse into bloody anarchy.
It’s good to learn you’re well read, jayarod7. Perhaps it would be good to use your erudite sources (even if not on-line) as your cites rather than tripe like Forbes.com.
That human progress marches “inevitably” may comes as a surprise to those well read enough to be aware of mediocre progress in Western Europe for many centuries after the Fall of the Roman Empire. Even medieval Ireland – a libertarian paradigm according to Mr. Farnaby – enjoyed no major technological progress during this era.
To make a connection between progress and strong central government is not hard at all. One might begin with ancient Egypt and follow up with China which for many centuries enjoyed technical successes far beyond those of the West, precisely because of their strong central government. (Libertopias, like Somalia or medieval Ireland, are dominated by local lords lacking the incentives, communication and stability to cooperate.)
Europe began its escape from the “Dark Ages” in the 16th century precisely because the power of Kings (central governments) had grown. I’ll follow my own recommendation and use printed book as my cite: A View of the Progress of Society in Europe by William Robertson. But that book is in the public domain, so Google lets us [del]have our cake and eat it too[/del] read from print, but copy/paste on-line.
The points Robertson makes, however, are almost too obvious to bother quoting:
[ul][li] Science fluorished in the Eastern and Islamic Empires, not in feudal Europe.[/li][li] Emigration, or even travel, was very difficult in a feudal society. Protection of travellers became an important role for central governments. Fantasy libertopias do rely on personal trust. If you think strangers would be welcome in such societies, ask first if they were welcome in medieval Ireland. Or lawless Somalia.[/li][li] The progress of Europe began with the empowerment of central governments (Kings), not vice versa. As Robertson makes clear, Kings often enhanced their power by borrowing from Lombard bankers and paying mercenary troops. (Dutch bankers invented the “bill of exchange” – a form of paper money! – these were legally endorsable from 1537. Of course precious metals from the New World also played an important role in monetary expansion.)[/li][/ul]
Summary: the question
seems quite ignorant to me. Can you tell us which erudite books you got this idea from?
Yes, but you’re quoting Bloomberg, whereas I’m actually looking at what Krugman wrote.
So he’s quoting someone else, who, according to his 2005 Op-ed seemed to be quite against the idea. He wasn’t advocating a housing bubble, he was pointing out that in order for the Fed to keep control of the situation, generating a housing bubble was the only thing in their power that would keep the economy rolling. Hell, he says as much in his 2010 piece on the subject:
…So his quote shows that he didn’t say what you say he said, and he claims that he was taken wildly out of context (which, again, his own writing supports). What’s next, wanna claim he’s advocating an alien invasion?
I say you should take it from primary sources, rather than other people interpreting those sources - at least, when the primary source is readily available and easily understood. It’s easy to say “Source X says <political opponent of Source X> Y said something”; but it’s often harder to say “Y said something here”. Or, you know, get an interpretation of it from the same guy who wrote it. I’m actually kind of curious why you didn’t just link directly to the Paul Krugman article in question, seeing as your very first link cited it directly. Oh wait, I know - because it didn’t say what the claims insinuated. The fact that something was widely reported does not make it true. Especially in economics. Remember R&R’s paper?
Well, let’s see… Since 2008, He’s been right by every testable metric about:
The effects of austerity
Both major austerity-supporting papers being dead wrong
The effects of QE on inflation and inflation in general
Bond rates
The effects of the stimulus
…And I think I’m missing a few things. He’s been wrong about… Um… Help me out here, what did Krugman get wrong since the depression started?
…Oh. So, basically, the argument you’re making is irrelevant to reality? Looking at flat spending, rather than spending as a share of GDP is an exercise in pointlessness. Yeah, no shit government spending is going to go up over time if you measure it flatly in a country where not only the economy but the population both grew in leaps and bounds over the last 100 years. But that says nothing about cyclical policy.
Actually, what matters is not just what the government spends, but rather the net economic output of the government (while too much spending during a boom can lead to overheating and/or crowding out, taxation can provide a slight cooling effect to offset that somewhat). And believe it or not, just 12 years ago we had the head of the federal reserve warning that we were reducing the debt too fast. Due to a democrat president, no less!
And yes, I know you’re going to bring up the debt as a flat number. But that number is fucking meaningless.
Not only did he not need to know better (a theoretical economic construct is not the same as its implementation), but history shows that he was right, right up until Reagan’s “Starve The Beast” mentality came to the forefront.
“Clear the market”? Okay, maybe I’m missing something, but I just don’t quite get this argument. What happens after the bubble deflates and the economy gets considerably worse (again)? What makes people want to spend money again, and reinvest?
Which is all very interesting, but misses two key points:
By any objective analysis, rising interest rates would lead to a major economic downturn.
Every single indicator we’ve had has been pretty much exactly what you’d expect in a liquidity trap, and as pointed out, Krugman’s predictions have been pretty much spot-on (based, primarily, on the idea that we are, in fact, stuck in a liquidity trap).
I’m really not convinced that that’s a fair representation of what is actually proposed by the IL-SM model. For example, Johnsson writes:
…Except that I can’t find anything on that in modern IS-LM analysis.
Or this.
Or this. And without that point, his argument falls apart. I’m not really convinced it’s a good argument, honestly. In fact, coming back to:
It seems, reading more carefully, that this is a straight-up misinterpretation of what Keynes meant. It has nothing to do with investment vs. profit; rather, it has solely to do with investment vs. liquidity. And equating profit with liquidity is highly flawed.
Oh, by the way, my turn to play Ad Hominem with your source - you do realize that he’s a goldbug, right? And finally, we have had an area with quite high interest rates after the depression. Europe. How are they doing? Ah. Right.
P.S. You excerpted a part of the article with no actual value, simply a summation relying on accepting the previous points of the article. Smooth move.
Past the edit mark - it is quite telling that when people go to discredit Krugman, the very first thing they reach for is what amounts to, essentially, one big fat quote mine.
Did you know that all of Krugman’s columns are on-line? You don’t need to read paraphrasings. (Get a ten-year old to clear cookies for you if you run into the ten-articles-for-free limit at N.Y. Times.) Here is the quote in question, with more context:
[QUOTE=Krugman, 2002]
… This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
[/QUOTE]
Please note that “household spending” is quite different from a housing price bubble. What you represent as “advice to the Fed” (paraphrasing McCulley) was actually, according to some, a joke about Greenspan’s use of bubbles as stimulus. I find Krugman’s actual quote too ambiguous to decide if it was clearly a joke. Your quote out of context hides the possibility. (I do not accuse jayarod7 of misleading deliberately. I do advise him, when he wants to quote someone like Krugman to … wait for it … use an actual quote rather than using a paraphrase from second-rate blogs like Forbes or Huffington.)
Unfortunately, they solved that (and many other) workarounds. However, if you nab the notes off his Twitter feed or other social media, it gets around the limit. Also, thank you for addressing this better than I could.
ETA: I must have spent 29+ minutes tracking down Kling’s quote, etc. On re-reading the thread, i could have posted more simply …
What Budget Player Cadet said.
ETA again: (I’m going to have to start clicking refresh more often.) Thanks for the vote of confidence, Cadet, but I think your post was more thorough and astute.
Why don’t we just say that in the Rationalists vs Hyperlibertarians game, the Rationalists are winning … helped by the Hyper team scoring several “own goals”.
I will admit to learning that price-deflation–>recession correlation is far from clearcut. I think there are too many other variables (interest and employment rates, etc.) to expect any simple correlation. Also, I wonder if previous centuries had a greater share of the economy with inelastic demand, making monetary effects less important.
I don’t know anyone who is thoroughly familiar with the history of the 1930s who thinks the New Deal was all positive with no negatives. Some of what FDR did was negative. On net, more was positive.
You should look at the facts.
You haven’t done that, or your posts wouldn’t be so utterly lacking in nuance. Hoover presided over the Great Contraction, and then when FDR was elected, things started turning around. He took office, dumped the gold peg – the absolute best thing he could have done – and thereafter oversaw economic expansion. It wasn’t perfect, but he saw net expansion despite whatever other mistakes he subsequently made. People were able to notice that things were getting worse under Hoover, and better under FDR.
Worse under Hoover. Better under FDR. Those are the facts.
You’re claiming that the people of the time were too stupid to notice their lives were getting better. They knew their own lives better than you do. Yes, it was due to FDR’s mistakes that the economy didn’t improve as quickly as it could have. The biggest mistake was 1937, when he acquiesced to the conservatives of his time – people like you, who were advocating exactly the sorts of contractionary policies that you like best – and decided to tighten both monetary and fiscal policy. At precisely the same time, the economy contracted again. Another fact. He realized his mistake and reversed course again, and the economy returned to expansion.
I can’t force you to pay attention to facts. Either you care about reality, or you don’t. That’s your choice.
So far, you have seemed entirely indifferent to any facts that don’t fit the story you most want to believe. This is the same cause of that twenty trillion dollar error you made earlier. You think because you’re right fundamentally that it doesn’t matter whether you get a few details wrong. You are mistaken on that. Your indifference to getting the details right is proof that you’re wrong fundamentally.
I, for one, do try to pay attention to all the facts, even the ones that don’t seem immediately favorable to me. I make mistakes, of course, but I try to acknowledge when I’ve stepped past the limits of evidence. This is why I can’t safely say that the New Deal was all sunshine and rainbows. I care that under FDR, the US government was destroying crops at the same time people were going hungry. I’m not going to ignore that and pretend everything he did was awesome. Many of his other policies like direct price controls were similarly unwise. But people are complex. There is such a thing in this world as nuance. He did some things wrong, and some things right, but overall, things were improving under FDR. Not as fast as they should have been improving, no, but still, the economy was generally on the mend under his administration.
I’m more monetarist than Keynesian. I wouldn’t be totally opposed to less government spending if the Fed were properly managed.
I don’t think austerity is prudent, but there’s reason to believe that the central bank can more than offset the contraction.
There is no alternative to government.
You can have mediocre government, or bad government. No other options. If you try to choose no government, then the result is automatically bad government.
When the Keynesians advocate a federal fiscal stimulus of a trillion and a half or more, plus aid to states to stop contraction at the local level, and instead Congress passes a stimulus of around 0.8 trillion with insufficient state aid to stop local contraction, then it’s easy for the Keynesians to claim that the government didn’t do enough. The government clearly didn’t do as much as they recommended.
There would be a better argument against fiscal spending if the government stimulus had been as large as their original recommendations, and it still hadn’t worked.
I’m not especially enamored of attempts at fiscal stimulus. I used to be. Not anymore. I try to pay attention to facts, and from my reading, the monetarists have the better argument. On the other hand, I do still have to admit that the conditions that the Keynesians outlined from the beginning have not been met. The stimulus fell short of what they were demanding from the very beginning. It’s not their fault that Congress hasn’t been doing what they want, just as it’s not my fault that the Federal Reserve hasn’t been doing what I want.
It’s in the interest of technocratic elites to act like they know what they’re doing.
This is true if they know what they’re doing. This is also true if they don’t know what they’re doing.
So I would naturally agree that we shouldn’t always take their statements at face value. At the same time, it’s also a mistake to always disbelieve their statements, and to always question their competence. There remains a possibility that some of them, occasionally, know exactly what they’re doing. With that said… I would not consider the present time as one of those occasions. Many of the members of the current FOMC are essentially clueless.
This does not mean that all future members will be similarly clueless. Crisis has a way of pushing the incompetent out of the way.
Krugman didn’t advocate inflating a housing bubble.
I know exactly the quote you’re thinking of, and you’re misreading him. That cite is to Arnold Kling, who is a fellow at the Cato Institute, hardly a sympathetic Keynesian, but he at least can recognize a cynical comment. (I see on preview that many others in this thread have pointed out this same error.)
Stupid comments, all of them. And?
You have a choice between mediocre government, and bad government.
A vote for no government is an automatic vote for bad government, because there is no such thing as no government. More on that just below…
I actually partly agree with this. Partly.
I don’t think the judgment of the error-prone and prideful members of the FOMC is especially reliable. It’s notable that in 1937, when the Fed made the mistake to tighten money far too much, they soon saw their mistake but didn’t want to reverse course too quickly because it would make them look bad. Insufferable stupidity, and so totally human. They were more concerned about their own reputations than about helping the country. This is what can happen.
But we’re still facing the same set of options. We don’t have a choice between central bank and no central bank. That’s just as much a fantasy as the choice between government and no government. We will continue to have government. We will continue to have an FOMC, or some equivalent body that makes monetary decisions. The choice here is between a mediocre FOMC, and a bad FOMC. Getting rid of the FOMC is not an option, and if you try to choose no FOMC, you automatically choose a bad one.
There is no such thing as no monetary policy. Either it’s mediocre, or it’s bad, but it can’t be willed away no matter how much you’d like it to be. In every coherent country in the modern world, the financial sector is guided by a central bank. That’s not a statement of morality. Your morality is irrelevant. It’s a simple statement of fact. Thus it is, and thus it shall remain. No going back. History moves in one direction, as far as this trend is concerned. Utopian revolution is impossible, but marginal change, from bad to mediocre, still remains possible. And that’s the sort of change that will make a positive impact on people’s lives.
When I look at their bad decisions, I’m not looking to get rid of them. Not exactly. That’s an impossibility. I’m looking for ways to shift their decision-making from bad to mediocre, with the occasional good thrown in if we’re lucky. This is just plain pragmatism. So in order to make their decision-making less bad, I would delegate some of the FOMC’s most important decisions elsewhere. For matters of interest rates, I would use a nominal GDP futures market if I had my druthers.
Maybe someday the druthers I ordered many years ago will finally be shipped.
Note that my personal solution is market-based. It doesn’t hinge on the egos of a small committee of unelected technocratic elites who are slow to respond to evidence if their pride would be wounded by changing their mind too quickly. The Fed under my system would follow a rules-based approach, with signals from the market about when to ease conditions and when to tighten. This wouldn’t stop bubbles, but it would mitigate their damage. And it would be at least somewhat more immune to foolish decisions of unelected technocrats. I can’t claim it would be “good”, but I think it would be an improvement, and it’s worth experimenting with.
Best of all, it is a small step which might be politically feasible. Which means that my plan, unlike yours, is actually possible. An NGDP futures market to supplement the committee is something that might one day actually happen. It is what I will continue advocating for.
You’re free to join me, if you ever let go of your fantasy utopia.
We’re back to the fact problem again.
We did get the deficits under control for most of the post-war period. They got out of hand under Reagan, and then back under control with Clinton. The budget was balanced briefly (and don’t cite any nonsense about this, I’m well aware of how the numbers break down). Debt was dropping nicely as a percentage of GDP, too. It only started to rise again under W. Of course, the budget situation at the beginning of W’s term wasn’t his fault, it was just a recession that started as he took office. He can’t be blamed for that. The rest of administration absolutely was his fault.
And now the deficit is coming down now again under Obama. If the current year’s trends continue, the deficit will come in under less than 5% of GDP. That’s not good enough, but it does signal that it can be brought back under control. The numbers aren’t up-up-up. The last several decades, they tend to go up with Republican presidents, and then back down with Democratic presidents.
That might not be enough of a trend to be proof of anything, but it’s interesting and suggestive. (Again on preview, I notice that others have made exactly this point.)
Fact: The deficit is decreasing, not just as a percentage of GDP but also in absolute terms.
“Past performance is not an indicator of future results.” No guarantee that the trend will continue. But now right, the deficit is going down.
I’ve said this before, years ago, but it’s worth repeating:
Someone has to enforce the standard. That’s why it’s a standard, and not just everyone carrying around grams of gold everywhere. The gold standard is paper that represents gold. People use the paper because carrying the gold is a major pain in the ass. But someone has to ensure that, if Mr Foreign Speculator wants to trade in his paper for gold, he gets the gold. And who is that?
It’s the government. And who decides whether to keep using the standard, to keep paying out gold or whether to stop? Why, it’s still the government. And which institution could be specifically empowered to drop the standard whenever it wishes? Why, it’s still the government. A gold standard would not constrain Congress’s spending. We know this is true, because the gold standard when it actually existed did nothing to constrain Congress’s spending. They could take a vote, any time they liked, and say: “We’re tired of this stupid standard. We’re the government and we’re keeping our gold in our cave, and all of you mofos can suck on it.” And poof! That’s the end of the gold standard. Or the president could just end it unilaterally, if that’s what he felt like.
To believe that “backing for the currency” in this day and age would act as any sort of control is absurd. Every gold standard in history failed. Any new gold standard will fail. It will not have any power to restrain government, because the standard only exists at the discretion of the government.
We have a choice between mediocre government, and bad government. That’s the choice.
By focusing your attention on fantasies, you are neglecting realistic ways in which we might improve what we already have. A small step toward a better outcome will always be preferable to a large imaginary step into the impossible that we can never do in real life. There might actually be policies that could potentially restrain spending in a way which you would prefer. You’re never going to find those policies if you continually distract yourself with irrelevant nonsense like gold.
Since you were completely unaware of the actual size of the US monetary base, I’m just going to state flatly that you’re not qualified to have an opinion on this topic.
This isn’t a verdict for life. You’re not going to be stuck in the corner with that little pointed hat forever. If you ever start to show any signs of responding to facts – if you ever become more like Human Action, and less like WillFarnaby – then the rest of us might one day be interested in your opinion on Fed chairs. For what it’s worth, though, I think Volcker was the right man for his time and that Bernanke was probably not the right man for his time, although I emphatically wouldn’t want a Volcker-clone today. (The problem with Bernanke might have been the rest of the committee. That’s hard to tell.)
Not especially, no.
I try to look at facts.
I’d be worried about QE if inflation were 7% and growth in nominal spending even higher. That’s not the case. QE as they’re currently practicing it is benign. We know it’s insufficient because the markets are reacting insufficiently. Inflation is still muted. Bernanke is still presiding over the least inflation of any Fed chair since the 1950s, with nominal growth around 4% annually since the big collapse in late 2008. The latest GDP release puts nominal growth even lower, at around 3%.
There is no inflation beast knocking at the door. Quite the opposite. Inflation continues to come in under the Fed’s ostensible target… which is yet more proof of the FOMC’s incompetence. If I were in charge of this fiat money system, you’d better believe I’d be able to hit my targets.
Japan did a policy of QE. They remain in deflation, with lower prices, even after significant increases in their monetary base.
With that said, I don’t think the current QE technique is sensible. They’re not doing it right. But there is obviously precedent. Your concern here is misplaced.
You did me the courtesy of addressing me directly, and so I replied. The next step is doing us all the courtesy of acknowledging past errors. You would also do better to write fewer posts, smaller posts, focused on single pieces of information instead of long rambling theories. That way, it would be much easier for you to notice if you ever make a mis-step. These techniques would help you in multiple ways: they will make you more persuasive if you’re right, and more likely to see your own errors if you’re wrong.
The main variable of interest is nominal income, NGDP, or maybe if it could be measured properly, the nominal wage rate.
You can have deflation if there’s strong growth in incomes resulting from strong productivity growth, which is to say, if NGDP is rising despite the drop in prices. This has happened before, that favorite example from the 19th century that libertarians love to cite. Rare but possible if real growth is strong enough. But there’s no example I’ve seen, from the early industrial period on, with declining nominal income (with the accompanying deflation) and no recession. This makes sense for two reasons.
First, banks loan and then receive interest. The initial flow of cash is in issuing the loan. Repaying the loan requires an identical flow of cash to pay back the principal, plus an additional flow of cash for the interest payment. If nominal income is falling, then the flow of income in the economy is falling, which means total incomes should be insufficient to repay loans. Banks will be in trouble. Credit will constrict.
And second, wages tend to be sticky. If the flow of cash is sufficient to meet the wages of 10 workers for today, then what happens if the flow of income decreases tomorrow? If everyone takes a pay cut, then all 10 workers can continue their employment. But if wages stay the same, then a cut in total income means that some of the workers lose their jobs. It’s like a game of musical chairs. Less nominal income, in a world of sticky wages, means that some chairs are taken out of the game and not everyone can find a seat.
