One has to wonder if there are any solutions to massive slumpings (or double or multiple dips) in today's increasingly complex and interconnected world. Krugman's solution of spend, spend, spend is very short term. Governments will spend on shovel ready jobs, people will have work for a few months, they will spend the money they earn, multipliers will have a positive effect, but the money will run out and then what? More spend, spend, spend? Governments' debts, already very large, will have increased and borrowing or taxing to spend more will have become much more difficult. And peoples' expectation will not have been met and, as appears to be the case in Greece and the other PIGS, there will be trouble in the streets.
The Krugman argument is essentially Keynesian, but as Keith points out Keynes lived in a rather different world. High unemployment in the US is not happening because the production of goods and services has temporarily fallen in the US. It's because of a massive shift of production to low cost countries, especially China. Essentially, large chunks have been ripped out of the advanced world and moved abroad. Stimulus spending in the US is therefore largely about consumption, not production. Multipliers are more likely to work themselves out by stimulating production in China than in the US. Meanwhile we in Canada continue to live under the increasingly false expectation that the giant to the south of us will wake up and depend on our exports as massively as it once did. That's not likely. If Krugman's solution is short term, what might be done in the longer term? One seemingly necessary step would be gaining a much better understanding of where the global economy is going. What might the respective roles of the developed world and the developing world be? If we had a better idea of that we could shift spending from the support of shovel ready jobs or bailouts to providing the kind of training that would make it easier for young people to find a place in the labour market of the future. Yes indeed, it would be great to get all or even most of the people who are currently unemployed working. But I don't think that's going to happen. It would be too costly. And what would they work at? Ed ----- Original Message ----- From: Steve Kurtz To: [email protected] Sent: Saturday, July 10, 2010 6:51 AM Subject: Re: [Futurework] Krugman's Insanity,And The Hard Mathematical Truth On 7/10/2010 3:22 AM, Keith Hudson wrote: They're in paralysis at the moment but, in desperation, they'll probably choose the Krugman route. This is probably the better route because it will bring about hyperinflation, and then sensible currencies, all the quicker. Keith Japan has tried it for 20 years with little success. Their debt to GDP is around double the US rate, yet interest rates are zero at spot and 1% longer term. As they say: you can lead a horse to water...and you can't push on a rope. Of course if the US issues a million dollars to every citizen as a gift (not via borrowing, just by decree), then inflation would jump...due to a sudden halving of the $US value. Within days, its buying power would drop likewise. If the US borrows the money, the devaluation will just take longer. Steve ------------------------------------------------------------------------------ _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
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