I am not so sure how to interpret this--seems like he's got parts of it right, US manufacturing weakness and so on. But no demand deficiency?
On Jim's comment about unemployment in Malaysia, my feeling has been that Malaysia rides with Singapore and thus has relatively low unemployment, although has much lower wages than Singapore. I found this online on Malaysia's unemployment rate. Seems low to me. http://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?symbol=MYR Anthony On Sat, Aug 7, 2010 at 6:15 PM, Jim Devine <[email protected]> wrote: > New York TIMES / August 6, 2010 > The Economy Needs a Bit of Ingenuity > > By EDMUND S. PHELPS > > THE steps being taken by government officials to help the economy are > based on a faulty premise. The diagnosis is that the economy is > “constrained” by a deficiency of aggregate demand, the total demand > for American goods and services. The officials’ prescription is to > stimulate that demand, for as long as it takes, to facilitate the > recovery of an otherwise undamaged economy — as if the task were to > help an uninjured skater get up after a bad fall. > > The prescription will fail because the diagnosis is wrong. There are > no symptoms of deficient demand, like deflation, and no signs of > anything like a huge liquidity shortage that could cause a deficiency. > [mass hoarding by banks won't do?] Rather, our economy is damaged by > deep structural faults that no stimulus package will address — our > skater has broken some bones and needs real attention. > > The good news is that some of the damage done in the past decade will > heal. The pessimism that broke out in 2009 is dissipating. The > oversupply of houses and office space, which is depressing > construction, will wear off. Banks and households are saving quickly > enough to retire most of their excessive debt within a decade. [within > a decade? ] > > But other problems are not self-healing. In established businesses, > short-termism has become rampant. Executives avoid farsighted > projects, no matter how promising, out of a concern that lower > short-term profits will cause share prices to drop. Mutual fund > managers threaten to dump shares of companies that miss quarterly > earnings targets. Timid and complacent, our big companies are showing > the same tendencies that turned traditional utilities into dinosaurs. > > Meanwhile, many of the factors that have long driven American > innovation have dried up. Droves of investors, disappointed by their > returns, have abandoned the venture capital firms of Silicon Valley. > At pharmaceutical companies, computer-driven research is making fewer > discoveries than intuitive chemists once did. We cannot simply assume > that, when the recession ends, American dynamism will snap back in > place. > > Many pin their hopes for reviving the economy on gains in worker > productivity. But such workplace advances often destroy more jobs than > they create. [as Keynes or Marx might say] That happened in the Great > Depression, when increased worker productivity allowed companies and > the economy to expand without creating new jobs. > > The decline in American dynamism is not the only problem. It has been > accompanied by a decline of what I call inclusion. Not only were > low-wage workers largely cut out of the economic gains of the 1990s > and 2000s — much of the middle class was, too. In part, this is > because the emerging economies around the globe have ended our > competitive advantage in manufacturing, and jobs have fled. We can’t > compete in those industries any more, and our business sector has not > yet found new advantages. > > The worst effect of focusing on supposedly deficient demand is that it > lulls us into failing to “think structural” in dealing with long-term > problems. To achieve a full recovery, we have to understand the > framework on which our broad prosperity has always been based. > > First, high employment depends on a high level of investment activity > — business expenditures on tangibles like offices and equipment, and > also training for new or existing employees, and development of new > products. > > Sustained business investment, in turn, rests on innovation. Business > cannot wait for discoveries in science or the rare successes in > state-run labs. Without cutting-edge products and business methods, > rates of return on a great many investments will sag. Furthermore, > innovation creates jobs across the economy, for entrepreneurs, > marketers and buyers. State-led technology projects do not. [no?] > > High business investment also depends on companies having confidence > in the future. A company might be afraid to invest in research or > product lines if it fears the rest of the economy is not doing the > same — or if it fears the government might become hostile to its > goals. During the Depression, John Maynard Keynes warned President > Franklin D. Roosevelt not to damage business confidence with > anti-profit rhetoric — to treat titans of business “not as wolves or > tigers, but as domestic animals by nature.” > > What, then, is to be done? One reform would be to create a First > National Bank of Innovation — a state-sponsored network of merchant > banks that invest in and lend to innovative projects. [picking > winnner?] Another would be to improve corporate governance by tying > executives’ compensation to long-term performance rather than one-year > profits, and by linking fund managers’ pay to skill in picking stocks, > not in marketing their funds. Exempting start-ups from corporate > income tax for a time would also help. > > We also need a program of tax credits for companies for employing > low-wage workers. That may seem counterintuitive at a time when the > Obama administration is pressing education and high-paying jobs, but > we need to create jobs at all levels. Early last year, Singapore began > giving such credits — worth several billion dollars — and staved off a > recession. Unemployment there is around 3 percent. [to what extent did > it export unemployment to Malaysia?] > > A revamp of the economy for greater dynamism and inclusion is > essential for prosperity and growth. Rather than continuing to argue > over solutions to a problem we do not have — low demand — the country > needs to focus on fixing the structural problems that, unresolved, > will stymie the economy over the long haul. > > Edmund S. Phelps, the director of the Center on Capitalism and Society > at Columbia University and winner of the 2006 Nobel Prize in > Economics, is the author of “Structural Slumps” and “Rewarding Work. > -- > Jim Devine > "All science would be superfluous if the form of appearance of things > directly coincided with their essence." -- KM > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > -- xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Anthony P. D'Costa Professor of Indian Studies and Research Director Asia Research Centre Copenhagen Business School Dalgas Have 15 DK-2000 Frederiksberg, Denmark Ph: +45 3815 2572 Fax: +45 3815 2500 http://uk.cbs.dk/arc www.cbs.dk/india http://www.thisismodernindia.com/this_is_modern_india_about_us.html xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
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