You Can’t Overwork Yourself By Smoking Joints and Watching Too Many Episodes of Jersey Shore « Modeled Behavior

 Modeled Behavior:

I think people are confusing cyclical prosperity with personal luxury. ...

However, this is not how we measure the cyclical wealth of nations. We measure it by employment and production. We say the economy is “doing well” when a lot of people are going to work and making stuff.

For example, we say that Germany’s economy seems to be recovering. However, consumption in Germany is not rising. Consumption is flat. Working is rising. Employment is rising. That is what it means to be doing well. It means that more people are doing more work.

This is why it makes no sense to say that a recession is inevitable because we overconsumed. Because we bought too much it is now inevitable that we work less? Why does that make fundamental sense? Surely something is going wrong. Shouldn’t we be working more to pay for all the stuff we bought.

Some [economists] say that the “something” is structural readjustment. We have to move towards an investment based economy and there are frictions. However, that story also works in reverse. A country could be consuming too little and then has to suddenly switch away from an investment based economy and will face frictions. Recessions in that story are not a punishment for overconsumption, they are a result of suddenly realizing that you have to shift paths. There are still problems here but they are on a deeper level about more subtle things.

The overconsumption theory by contrast says that the recession is natural because we bought too much stuff during the 2000s. Too many houses. Too many big screens. That’s why you are not working now. ...It doesn’t even make basic logical sense. ...If we consumed too much then shouldn’t we need to work extra hard? Why is society working less? What about spending too much money implies that the natural reaction is that people should go home and sit on the couch?

...this [is the] key question [that any macroeconomic theory must answer, but the overconsumption theory does not]:
WHY ARE PEOPLE WORKING LESS?

 Paul Krugman called this the hangover theory of recessions.