Ed,
From your comments below I would judge that you are laying odds of
something like 2:1 against the present state of affairs being cyclical
rather than structural, whereas I would put it at 50:1! Even so, what you
wrote in your middle paragraph is correct. If Obama truly believed in a
free market -- which he says he does -- then he would send Geithner packing
to some Harvard professorship and start to parley with the Chinese. Despite
the fact that the Chinese have a non-democratic government which is very
different from ours in the West, they are doing exactly the same now as
America did to Western European countries from about the 1870s onwards --
copying our technologies and making products cheaper than we can. In
China's case today the comparative advantage is cheap labour; in America's
case in those days it was cheap oil from their own oilfields compared with
our expensive deep-mined coal. The cost advantage in the price of finished
goods in both cases is about the same and, although fairly small (about
10%), it's decisive in the modern competitive world.
Some Chinese investors have bought themselves into America firms, but
they're usually small, specialist businesses which don't employ much labour
(although one small steel firm was able to increase its workforce by
1,000). But when it came to a sizeable attempted purchase -- such as for
Unical in 2005 -- US Congress threw it out immediately. Even though Unical
was by no means a large oil company it touched a nerve. So far, Chinese
investment in the US is only a small fraction of what it is investing
elsewhere and creating new jobs for those countries. But the wages of
factory jobs in China are now rising quite quickly and, indeed, some UK
firms are now withdrawing their operations in China and bringing them back
home. If Obama could encourage anywhere near as much Chinese investment in
America as US firms are investing in China then a significant number of
unemployed Americans could be given jobs.
Nevertheless this wouldn't solve the structural problem of automation
advancing into almost any routine job, production or retail and even into
some service jobs such as medical diagnosis. Nor would it necessarily
prevent Obama from continuing the Reagan and Bush policy of devaluing the
dollar by over-printing -- and dragging down many other currencies in the
process. The structural problem of automation remains, I fear, and I can't
see how full employment can ever be regained in Western countries except
for one or two such as Germany, Switzerland and Sweden. However, the
populations of all Western countries are doing their best to neutralize
unemployment in the longer term -- by fast reducing the number of children
per family to less than replacement levels! But this was already happening
in "boom" times decades ago and one wonders whether it is a comment on the
real quality of our society!
Keith
At 10:42 16/09/2010 -0400, you wrote:
Keith, you're raising a very important question: is the current prolonged
recession a matter of the business cycle or is it a matter of structural
change? If cyclical, Keynes can probably do a lot to fix it, but if
structural we may be moving from the kind of economy we've lived in for
much of the past century into something that is really quite different and
that the simple application of Keynianism can't fix. It's probably a mix
of both, but I'm of the opinion that it is considerably more structural
than cyclical.
If the problem is largely cyclical the kind of spend, spend, spend
approach advocated by Krugman and Canada's Action Plan makes considerable
sense. In being essentially structural, however, the problem becomes far
more difficult and may mean that countries that currently comprise the
first world will have to accept giving way to emerging giants such as the
BRIC and recognize that in many respects they really have slipped into the
second world. They may have to accept continuing large scale
unemployment, declining incomes and levels of indebtedness even higher
than those that prevail now. Solutions will likely have to focus on trade
deals and the continued growth of the multi-country production of goods
and services where one country produces part of a good, others produce
other parts and somewhere the whole thing is put together. This is of
course already happening and America is still dominant but its dominance
can't be considered permanent. Much will depend on the evening out of
cost structures, including wages.
Meanwhile, we have to be patient with the Rogoffs and Krugmans of our
world. Nobody likes to think they're on a sinking ship. And the ship may
not be sinking yet, but somewhere out there the iceberg is patiently waiting.
Ed
----- Original Message -----
From: <mailto:[email protected]>Keith Hudson
To: <mailto:[email protected]>RE-DESIGNING WORK, INCOME
DISTRIBUTION, ,EDUCATION
Sent: Thursday, September 16, 2010 9:12 AM
Subject: [Futurework] Why Rogoff isn't convincing
A recent article, "Why America isn't working", by Kenneth Rogoff,
ex-chief economist of the IMF, writing in Project-Syndicate.org, is so
badly entitled that it almost amounts to trade mis-description. He
describes where America is now with high unemployment. He then criticises
Keynesian methods of trying to solve the problem. He then puts forward
what can only be described as a Keynesian solution. Finally he leaves the
reader dangling at the end wondering why Rogoff didn't actually explain
why America isn't working.
Rogoff never once mention automation or computerization. He never once
mentions that the US government lost so much control over its own money
that there were several times more of it available as consumer, corporate
and derivatives credit than had ever been in circulation in the real world.
If he were to admit these things then he would have to start to think
about real solutions to the mess that now afflicts all of the Western
world. He seems to think that because he and Carmen Reinhart have written
a book about financial crises in the past 800 years then that qualifies
him to have something to say about this one. The fact is that both of the
main factors that have caused this one were simply not existent in any of
the previous crises, not even that of the 1930s.
Keith
<<<<<
WHY AMERICA ISN'T WORKING
Kenneth Rogoff
As the US economy limps toward the second anniversary of the Lehman
Brothers bankruptcy, anemic growth has left unemployment mired near 10%,
with little prospect of significant improvement anytime soon. Little
wonder that, with mid-term congressional elections coming in November,
Americans are angrily asking why the government's hyper-aggressive
stimulus policies have not turned things around. What more, if anything,
can be done?
The honest answer -- but one that few voters want to hear -- is that
there is no magic bullet. It took more than a decade to dig today's hole,
and climbing out of it will take a while, too. As Carmen Reinhart and I
warned in our 2009 book on the 800-year history of financial crises (with
the ironic title This Time is Different), slow, protracted recovery with
sustained high unemployment is the norm in the aftermath of a deep
financial crisis.
Why is it so tough to boost employment rapidly after a financial crisis?
One reason, of course, is that the financial system takes time to heal --
and thus for credit to begin flowing properly again. Pumping vast
taxpayer funds into financial behemoths does not solve the deeper problem
of deflating an over-leveraged society. Americans borrowed and shopped
until they were blue in the face, thinking that an ever-rising housing
price market would wash away all financial sins. The rest of the world
poured money into the US, making it seem as if life was one big free lunch.
Even now, many Americans believe that the simple solution to the nation's
problem is just to cut taxes and goose up private consumption. Cutting
taxes is certainly not bad in principle, especially for supporting
long-term investment and growth. But there are several problems with the
gospel of lower taxes.
First, total public-sector debt (including state and local debt) is
already nearing the 119%-of-GDP peak reached after World War II. Some
argue passionately that now is no time to worry about future debt
problems, but, in my view, any realistic assessment of the medium-term
risks does not permit us simply to dismiss such concerns.
A second problem with tax cuts is that they might well have only a
limited impact on demand in the short run, with the private sector
hoarding a significant share of the funds to repair badly over-leveraged
balance sheets.
Last but not least, there is a fairness issue. By some measures, nearly
half of all Americans do not pay any income tax already, so cutting taxes
skews an already very unequal income distribution. Deferred maintenance
on income equality is one of many imbalances that built up in the US
economy during the pre-crisis boom. If allowed to fester, the political
consequences could be severe, including trade protectionism and perhaps
even social unrest.
Those who think that the government should take up the slack in private
spending point out that there is an abundance of growth-enhancing
projects -- a point that should be obvious to anyone familiar with
America's fraying infrastructure. Likewise, transfers to state and local
governments, which have limited constitutional scope to borrow, would
help slow down wrenching layoffs of teachers, firefighters, and police.
Lastly, extending unemployment insurance in the wake of a
once-in-a-half-century crisis should be a no-brainer.
But, unfortunately, Keynesian demand management is no panacea, either.
Nor can the government always be the employer of last resort. While tax
cuts enhance long-term productivity, expanding the government sector is
hardly a recipe for economic vitality. There are surely many useful
activities for the government to undertake in a market economy, but a
frenzied orgy of stimulus spending is not conducive to rational
discussion of what they should be. And of course, there again is the
matter of the soaring national debt.
All in all, the G-20's policy of aiming for gradual stabilization of
growth in government debt, bringing it into line with national-income
growth by 2016, seems a reasonable approach to balancing short-term
stimulus against longer-term financial risks, even at the cost of
lingering unemployment.
While America is facing the limits of fiscal policy, monetary policy can
do more, as Federal Reserve Chairman Ben Bernanke detailed in a recent
speech in Jackson Hole, Wyoming. With credit markets impaired, the Fed
could buy more government bonds or private-sector debt. Bernanke also
noted the possibility of temporarily raising the Fed's medium-term
inflation target (a policy that I suggested in this column in December 2008).
Given the massive de-leveraging of public- and private-sector debt that
lies ahead, and my continuing cynicism about the US political and legal
system's capacity to facilitate workouts, two or three years of slightly
elevated inflation strikes me as the best of many very bad options, and
far preferable to deflation. While the Fed is still reluctant to
compromise its long-term independence, I suspect that before this is over
it will use most, if not all, of the tools outlined by Bernanke.
The bottom line is that Americans will have to be patient for many years
as the financial sector regains its health and the economy climbs slowly
out of its hole. The government can certainly help, but beware of pied
pipers touting quick fixes.
Kenneth Rogoff is Professor of Economics and Public Policy at Harvard
University, and was formerly chief economist at the IMF.
>>>>>
Keith Hudson, Saltford, England
----------
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
Keith Hudson, Saltford, England
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
