Zachary Goldfarb presents a series of charts and concludes,

Put it all together and household debt has weighed on the economy in a way many people don’t appreciate, but there seems to be progress toward addressing it.

Pointer from Mark Thoma.

In my view, Goldfarb is presenting symptoms and suggesting that they are causes. This is a characteristic of what I call the Keynesian fixation. Note that in macroeconomics the position that I criticize is the mainstream position. New readers should be aware that mine are outlier views.

To a Keynesian, economic activity consists of spending. Spending causes jobs, and jobs cause spending. When you look at economic data, that is your focus. Is spending going up or down? If it goes up, then we will have more jobs and more spending. If it goes down, then we will have fewer jobs and less spending.

The alternative approach that I propose is to look at economic activity as the formation of patterns of sustainable specialization and trade (PSST). As entrepreneurs create businesses that exploit comparative advantage and specialization, jobs and spending increase. When existing patterns of trade become unsustainable, jobs and spending decrease. See this paper and this paper.

For example, when hurricane Sandy hit New York, the Keynesian fixation was to look at the destruction in terms of how it would affect spending. Would people spend less, because of lost wealth? Or would they spend more, because of the need to rebuild? Mayor Bloomberg wanted to run the New York marathon less than a week after the hurricane hit, because he did not want the city to miss out on the all the spending that comes with the marathon.

My view is that what matters are the patterns of specialization and trade, which depend on the transportation infrastructure. I over-estimated the damage to that infrastructure, and so I thought that there could be significant long-term shifting of jobs out of Manhattan. However, if only a tiny portion of the transportation infrastructure suffered damage that could not be repaired in a couple of weeks, then the PSST story would say that employment in the area should not be affected.

To take another example, the “fiscal cliff” does not trouble me. If you hold the Keynesian fixation with spending, then it appears that a sharp reduction in government spending and/or increase in taxes will cause a recession. If you think in terms of PSST, it probably will make little or no difference. And, as I wrote two years ago,

Government spending plummeted by nearly two-thirds between 1945 and 1947, from $93 billion to $36.3 billion in nominal terms. If we used the “multiplier” of 1.5 for government spending that is favored by Obama administration economists, that $63.7 billion plunge should have caused GDP to fall by $95 billion, a 40 percent economic decline. In reality, GDP increased almost 10 percent during that period, from $223 billion in 1945 to $244.1 billion in 1947.

After the second World War, the U.S. economy easily created new patterns of specialization and trade. I think that one reason is that the war increased mobility, as soldiers met others from different parts of the country. Instead of remaining in their communities of birth, men moved in order to take advantage of new opportunities. Regardless of whether this was an important factor, it should be obvious that if we could cut government spending by 25 percent and thrive, then going over the fiscal “cliff” would be a non-event.

If I were assembling charts on the economic outlook, I would focus on secular factors: declining labor force participation among less-educated men, which indicates that new patterns of trade are reducing the value of their work; the increasing “tax” represented by the cost of providing health insurance to workers in large enterprises; the significant shift in the distribution of wealth toward Washington, DC, which makes secondary businesses such as restaurants and real estate services more profitable in the nation’s capital and less profitable elsewhere. Or consider the charts on household income and benefits from Gary D. Alexander, showing many categories of workers facing marginal tax rates of over 100 percent.

We should be trying to understand what is causing the breakdown in patterns of specialization and trade that prevailed at the end of the 1990s. We should be trying to understand what is impeding the formation of new patterns of specialization and trade today.