Countries with large external surpluses import demand from the rest of the world. In a deep recession, this is a "beggar-my-neighbour" policy. It makes impossible the necessary combination of global rebalancing with sustained aggregate demand. John Maynard Keynes argued just this when negotiating the post-second world war order. In short, if the world economy is to get through this crisis in reasonable shape, creditworthy surplus countries must expand domestic demand relative to potential output. How they achieve this outcome is up to them. But only in this way can the deficit countries realistically hope to avoid spending themselves into bankruptcy.
In short, if the world economy is to get through this crisis in reasonable shape, creditworthy surplus countries must expand domestic demand relative to potential output. How they achieve this outcome is up to them. But only in this way can the deficit countries realistically hope to avoid spending themselves into bankruptcy.
La cigale et la fourmi comes to my mind here, and I'm amazed that redstar would agree with Munchau and Wolf that the policies of reckless unsustainable debt-fuelled "growth" are the way to go, even now.
The issue is one of sharing the fruits of the economy, not of creating them, given that "creating" them right now involves printing money rahter than actual value generation.
We have to get our heads around this fact: real value generation in the recent past was fake, but the massive use of fake money allowed for whatever was there to be unfairly apportioned. Now the bill is coming due, and there will be no way to avoid that. What matters now is how pain is apportioned. Asking Germany to spend money is just asking them to accept yet more Anglo/plutocrat imaginary money in exchange for real stuff. No wonder they are not keen. In the long run, we're all dead. John Maynard Keynes
Asking Germany to spend money is just asking them to accept yet more Anglo/plutocrat imaginary money in exchange for real stuff.
Actually, no. If they were to spend money, they would not accept money of any kind (imaginary or not), they would be spending it. Of course, they may feel that they would be getting imaginary goods, or that they would enter a cycle of spending money they don't and won't have. But they wouldn't need to accept imaginary money. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
The point is, something needs to be done for people who are going to, very soon, be suffering the ravages of the neo-liberalism "Western" political elites, not just in the UK and the US, have foisted on their countries. Or, we can not do something, and have the parties who are supposedly there to represent working people and are considered "respectable," the PS in France, the SPD in Germany for starters, sit on their hands and continue their very public strategery of infighting, and watch the consequences.
I suspect in Germany this will lead to big big gains in next year's election for Die Linke. Which is, I guess, a very nice silver lining, as it's been a long time working people had real representation in a major European country.
And speaking of Die Linke, Dodo's translation of Oskar Lafontaine on the subject is virtually identical to my own. Austrian school, Anglo school....it's really hard to quite know which economic ideology is worse for working people. Fai de bèn a Bertrand, te lou rendra en cagant
I suspect in Germany this will lead to big big gains in next year's election for Die Linke.
Would be nice! Always the pessimist, at this stage, I expect a much stronger trend to non-voting (both from the SPD and the CDU) than to the Left (even despite the fact that the Left Party's gains are in no small part from previous non-voters). *Lunatic*, n. One whose delusions are out of fashion.
And, if we could be sure that only the profligate be punished, I would agree with your wholeheartedly. But, that's not how things are likely to happen. Oh, the profligate will get theirs (and this, no matter what we do in my opinion) via a marked decline in living standards over the next decade at the very least. But so will this happen in many in our countries as well, and it won't be those who've profited of the past decade.
We can play (ultimately cycle-reinforcing, even magnifying) fiscal conservatism now and say the problem isn't us, but what do we then tell the workers when unemployment goes back up over 12% like the last time? I know where it led last time...to 12 years of Chirac, that's where. And unemployment benefits aren't what they were back then, and there's a desperate need for more public housing.
We've got a president who's announcing a pretty completely bullshit plan de relance, but at least it's a plan. What are we proposing? It can't be nothing, that's just not politically feasible in the present environment, certainly not for people who claim to represent working people.
This isn't about helping Anglo-American financial capitalism out of their mess. It's about helping ourselves, though I suspect, as indicated above, that help will come one way or another. Fai de bèn a Bertrand, te lou rendra en cagant
(It should also be noted that the world seems to be running a $350bn surplus with itself.)
Could you explain this?
Also, do you agree with Paul Krugman that in the case of the United States it is far better to overshoot on a major fiscal stimulus plan than to be too conservative (especially since an over-generous stimulus package can be adjusted for by raising interet rates)? Truth unfolds in time through a communal process.
That aside, and with the usual disclaimer that I'm not an economist, I think it very much depends on what the stimulus is spent on.
If it's spent on windmills and railroads, it's better to overdo it.
If it's spent on building highways or digging holes in the ground and filling them up again, it's probably usually better to overdo it.
If it's spent on bailing out fatcats with schemes that reinforce "too big to fail" and "moral hazard" problems rather than solve them... well, the jury is still out on that.
I have a hypothesis that one reason why monetary policy interventions are so beloved by a certain kind of economists is that they're one-size-fits-all, so they're easy to input into simple (simplistic?) models - all .5 percentage point interest rate cuts are created equal, as it were. Whereas fiscal interventions open up a whole political can of worms about where and how the fiscal intervention is desired - all .5 trillion stimulus packages are not created equal.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Yesterday I listened to an interview with Paul Krugman in which he says:
It is true that the two relevant examples -- FDR in the 30's and Japan in the 90's -- used public works spending. And while you can argue that it helped, it certainly didn't in either case bring them out of the slump. But then if you look at it more closely you discover they really didn't do it on an adequate scale in each case. And it was in the end a public works program that ended the Great Depression, a very large public works program known as World War II. We don't have to do it on that scale, I hope, this time. But the question for conservatives here is, What is your answer? Is he really saying that what we need to do is let the free market work, let wages fall, liquidate farmers, liquidate the workers, as Herbert Hoover -- ? We have a pretty good idea of what needs to be done. And we should act on that, because the consequences of not acting would be terrible. Paul Krugman on the Crisis of `08 | WBUR and NPR's On Point with Tom Ashbrook
And it was in the end a public works program that ended the Great Depression, a very large public works program known as World War II. We don't have to do it on that scale, I hope, this time.
But the question for conservatives here is, What is your answer? Is he really saying that what we need to do is let the free market work, let wages fall, liquidate farmers, liquidate the workers, as Herbert Hoover -- ?
We have a pretty good idea of what needs to be done. And we should act on that, because the consequences of not acting would be terrible.
Paul Krugman on the Crisis of `08 | WBUR and NPR's On Point with Tom Ashbrook
To which someone responds on the website, in a similar vein as your comment:
Your guest does not seem to respect the difference between World War II spending and New Deal spending. This isn't to say that New Deal spending was bad and World War II spending was good they probably were both necessariy. They were however also very different in some key regards and one was as even your guest admits was thoroughly more effective than the other. World War II spending was focused on creating jobs in a new emerging industry New Deal spending was focused on maintaining jobs in a dieing industry, World War II spending had clear objectives, New Deal spending was just sending money chasing after problems, World War II spending was focused in large on R&D, New Deal spending was focused on maintaining an old system sometimes despite technology. The difference between the two couldn't be more clear. Let's spend but let us also follow the World War II model and spend on new enterprise with clear objectives let's not spend on ineffective dieing industries. Government spending isn't inherently good or inherently bad but there definitely is a right way and a wrong to spend money I say spend it the right way. Posted by Sam, on December 1st, 2008 at 10:46 pm EST Paul Krugman on the Crisis of `08 | WBUR and NPR's On Point with Tom Ashbrook
Your guest does not seem to respect the difference between World War II spending and New Deal spending. This isn't to say that New Deal spending was bad and World War II spending was good they probably were both necessariy. They were however also very different in some key regards and one was as even your guest admits was thoroughly more effective than the other. World War II spending was focused on creating jobs in a new emerging industry New Deal spending was focused on maintaining jobs in a dieing industry, World War II spending had clear objectives, New Deal spending was just sending money chasing after problems, World War II spending was focused in large on R&D, New Deal spending was focused on maintaining an old system sometimes despite technology. The difference between the two couldn't be more clear. Let's spend but let us also follow the World War II model and spend on new enterprise with clear objectives let's not spend on ineffective dieing industries. Government spending isn't inherently good or inherently bad but there definitely is a right way and a wrong to spend money I say spend it the right way. Posted by Sam, on December 1st, 2008 at 10:46 pm EST
