From: "Jim Devine"
[at least it sounds that way at first. But PK doesn't discuss how future bubbles (unsustainable expansions) can be arranged. ] The New York Times / December 22, 2008 / Op-Ed Columnist Life Without Bubbles By PAUL KRUGMAN Whatever the new administration does, we're in for months, perhaps even a year, of economic hell. After that, things should get better, as President Obama's stimulus plan — O.K., I'm told that the politically correct term is now "economic recovery plan" — begins to gain traction. Late next year the economy should begin to stabilize, and I'm fairly optimistic about 2010. But what comes after that? Right now everyone is talking about, say, two years of economic stimulus — which makes sense as a planning horizon. Too much of the economic commentary I've been reading seems to assume, however, that that's really all we'll need — that once a burst of deficit spending turns the economy around we can quickly go back to business as usual. ^^^ CB: Can't go back to business as usual sounds like a Workers World slogan from a few years ago. Why can't things go back to business and finance as usual ? Has there been some fundamental crisis in capitalism ? Wouldn't it be a mistake to believe that this tendency of imperialism to decay precludes the rapid growth of capitalism ? ^^^^ In fact, however, things can't just go back to the way they were before the current crisis. And I hope the Obama people understand that. ^^^ CB: Do the Wall Street people understand that ? ^^^^^ The prosperity of a few years ago, such as it was — profits were terrific, wages not so much — depended on a huge bubble in housing, which replaced an earlier huge bubble in stocks. And since the housing bubble isn't coming back, the spending that sustained the economy in the pre-crisis years isn't coming back either. ^^^ CB: What about the $ 8 trillion just spent on Wall Street revival ? Spend that and more on mortgagors, autoworkers, debtors and workers of all types. ^^^^ To be more specific: the severe housing slump we're experiencing now will end eventually, but the immense Bush-era housing boom won't be repeated. Consumers will eventually regain some of their confidence, but they won't spend the way they did in 2005-2007, when many people were using their houses as ATMs, and the savings rate dropped nearly to zero. So what will support the economy if cautious consumers and humbled homebuilders aren't up to the job? A few months ago a headline in the satirical newspaper The Onion, on point as always, offered one possible answer: "Recession-Plagued Nation Demands New Bubble to Invest In." Something new could come along to fuel private demand, perhaps by generating a boom in business investment. ^^^ CB: "Business investment" ? That's kind of vague. ^^^^ But this boom would have to be enormous, raising business investment to a historically unprecedented percentage of G.D.P., to fill the hole left by the consumer and housing pullback. While that could happen, it doesn't seem like something to count on. ^^^ CB: Ye olde entrepreneurial spirit is not up to it anymore ? Wow, capitalism really is a spent force. What is to be done ? ^^^ A more plausible route to sustained recovery would be a drastic reduction in the U.S. trade deficit, which soared at the same time the housing bubble was inflating. By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending. ^^^^^ CB: Ah , the Entrepreneurial Spirit revived: A Free Trade Bubble ! Maybe the South Seas are fertile again . ^^^ But it will probably be a long time before the trade deficit comes down enough to make up for the bursting of the housing bubble. For one thing, export growth, after several good years, has stalled, partly because nervous international investors, rushing into assets they still consider safe, have driven the dollar up against other currencies — making U.S. production much less cost-competitive. ^^^ CB: The strong dollar makes our sales weak. ^^^^ Furthermore, even if the dollar falls again, where will the capacity for a surge in exports and import-competing production come from? Despite rising trade in services, most world trade is still in goods, especially manufactured goods — and the U.S. manufacturing sector, after years of neglect in favor of real estate and the financial industry, has a lot of catching up to do. ^^^^ CB: Runaway plants; what goes around comes around. ^^ Anyway, the rest of the world may not be ready to handle a drastically smaller U.S. trade deficit. As my colleague Tom Friedman recently pointed out, much of China's economy in particular is built around exporting to America, and will have a hard time switching to other occupations. ^^^ CB: Yeah. Those Chinese are knocking down all Yankee walls with commodities as artillery. ^^^^ In short, getting to the point where our economy can thrive without fiscal support may be a difficult, drawn-out process. And as I said, I hope the Obama team understands that. ^^^ CB: Do you mean we are going to have to be patient with the O team because there are no quick fixes for late, late, last stage capitalism, imperialism ? or are we in a real fix ? Will O fix your red wagon ? ^^^ Right now, with the economy in free fall and everyone terrified of Great Depression 2.0, opponents of a strong federal response are having a hard time finding support. John Boehner, the House Republican leader, has been reduced to using his Web site to seek "credentialed American economists" willing to add their names to a list of "stimulus spending skeptics." But once the economy has perked up a bit, ^^^^ CB: Just like that ? Presto chango ? ^^^ there will be a lot of pressure on the new administration to pull back, to throw away the economy's crutches. And if the administration gives in to that pressure too soon, the result could be a repeat of the mistake F.D.R. made in 1937 — the year he slashed spending, raised taxes and helped plunge the United States into a serious recession. The point is that it may take a lot longer than many people think before the U.S. economy is ready to live without bubbles. ^^^ CB: Like forever ? ^^^^^ And until then, the economy is going to need a lot of government help. ^^^^^^ CB: This is not a free market, even when the government is not paying out trillions so obviously to the "private" sector. It's not a free market, because the "too big to fail" institutions don't have to worry about "freely" failing ever. Freddy the Finance Freeloader Economy This message has been scanned for malware by SurfControl plc. www.surfcontrol.com _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
