Paul Krugman -A Permanent Slump?

[n2doc]

Spend any time around monetary officials and one word you’ll hear a lot is “normalization.” Most though not all such officials accept that now is no time to be tightfisted, that for the time being credit must be easy and interest rates low. Still, the men in dark suits look forward eagerly to the day when they can go back to their usual job, snatching away the punch bowl whenever the party gets going.

But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?

You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.

And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.

Mr. Summers began with a point that should be obvious but is often missed: The financial crisis that started the Great Recession is now far behind us. Indeed, by most measures it ended more than four years ago. Yet our economy remains depressed.

more

http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html


Also, the blog post this is based on:
http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/

Both worth reading.

[Hoyt]

1. Well that's depressing, and political stupidity/obstructionism will make a bad situation worse.

[House of Roberts]

2. Easy credit and low interest rates are what caused the bubble that led to the crash.

People aren't going to fall for it again so easily. Jobs can evaporate so quickly that debt isn't a good idea anymore.

[n2doc]

3. My feeling is this

We have deliberately put ourselves into this position. The economic elite have bought hook,line and sinker the idea that globalization and 'free trade' are the right things. So long as this country actively encourages the outsourcing of jobs, the tolerance of other countries subsidizing their industrial base (While we subsidize outsourcing) and dumping subsidized goods on us, Allow currency manipulation (another form of subsidization) and neglect our infrastructure, schools and researchers, we are screwed. None of this is 'free trade', it is 'subsidize the lazy CEO's who can't be bothered to innovate and compete'. Each established industry or company is simply a cash pile to loot.

It is clear what must be done but impossible to find the political will to do it. Everyone with any power gets bought off.

[cali]

4. +1

[MisterP]

7. well, the FTAs always tell their targets to stop subsidizing industry so they can be as strong as us

[JHB]

9. I think it's less "bought off" as "bought in"

It seems like the entire crop of leadership that came up from the 70s on basically agrees with the neoliberal economic viewpoint. The entire mindset that regards the New Deal as "old thinking" rather than something that needed some course-correction and updating for circumstances that had developed in the decades after WW2 (changes in technology and competition, etc.).

[Marr]

5. I've no doubt that the 1% would prefer it that way.

They're still making profits, and working people are backed into a corner. This "stagnant economy" is working just fine for them.

But it isn't sustainable. Keep this up and it's only a matter of time before things start getting very openly, physically ugly, and they'll be wishing they'd just passed on that third yacht.

[phantom power]

6. the slump cannot end until policymakers rediscover Keynesian economics

That is making the possibly generous assumption that policymakers *want* to end the slump.

[grasswire]

8. MUST READ COMMENTS section

Very enlightening. Very good comments. I'm going to keep kicking this in the hope that people will read the comments. Here's one:

"The solution is a Federal taxes on hoarding. Income and assets held by individuals above 1 million dollars that are put into foreign bank accounts, stock speculation and third homes should be taxed at 50% per year and the revenue used to hire workers to repair America’s failing infrastructure. Exemptions would be made for payments to workers, education expenses, investments in start-up companies, initial public stock offerings and government bonds. Corporate investments made in off-shore ventures should be taxed at 75%. The 1% has demonstrated that it cannot manage America’s money for the collective good, so it is time for the rest of us to do so.

Wow.

[FarCenter]

10. Do we really want economic growth?

More growth implies more McMansions, more highway lane miles, more miles driven, more office buildings, more factories, more fracking, more acres under cultivation, etc.

Economic growth is greater consumption and greater ecological damage.

[ljm2002]

11. What we really need...

...is to throw out the models and figure out a new way of doing things.

We need to use less: less oil, gas, coal and energy in general. More solar, wind and renewables.

We need to re-think employment: in order to feed ourselves, and have everything necessary for a comfortable existence, we don't need people to work 40 and more hours per week. It just is not needed anymore. We need more people working 20 hour weeks, and somehow (yes this is a hand wave) make it pay enough to live on.

We need to re-think money itself. Right now it is just a bookkeeping sleight of hand that allows the big boys to amass more and more while the vast bulk of the population in the world is squeezed.

We need to optimize more: e.g., use hemp rather than trees to make paper, based on yield per acre as well as the fact that you can grow hemp each year rather than having to cut down a forest and then it takes 20, 30 years to regrow.

We need to get rid of environmentally destructive practices like (for just one recent example) shipping chicken back and forth between the US and China then back to the US -- like, WTF? That makes absolutely no sense at all, none.

We need to ally ourselves with other peoples around the world and stop buying into war-war-war as a method to resolve differences. We need to use our war machines for good deeds -- i.e. when disasters strike, use our (unarmed) forces for rescue and the delivery of food and medicines. With all the hardware at our disposal, this could be a huge force for good.

We need to figure out sustainable ways to survive around the globe, and foster local or at least relatively local production of food and other necessities.

We need to figure out quickly how to reverse the carbon input in our atmosphere. No more time for dithering. Time for a global mass movement to save the world -- including our own and many other species.

That's what we NEED to do.

[LuvNewcastle]

12. We've got to somehow get the rich to invest in the economy and

stop putting all of it in the stock market. They're making tons of money and the rest of us are barely getting by. At this point, I don't care if the government takes it all from them and redistributes it where it needs to go to keep things going. We have an economy that's only working for a small sliver of the population and those people don't give a fuck about making things work for the rest of us. We need to let them know that they can change things or we'll change things for them.

[n2doc]

13. One simple way would be to tax all income as income

And maybe even tax interest based income higher than wages, at least above a certain level. If hoarding cash was a bad thing, then companies would stop doing it.

I personally would like to see bonuses taxed at a higher rate, or perhaps double taxed (both on the person and on the company, at present bonus payments are tax deductible for the company).

Maybe profits that are rolled back into tangible assets that provide jobs should be taxed at a lower rate also.