[Pen-l] PK on bubble-free economy

["Charles Brown" <charlesb@xxxxxxxxxxxxxxxxxxxxx>]

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 â O.K., I'm told that the
politically correct term is now "economic recovery plan" â 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 â 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 â 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 â profits were
terrific, wages not so much â 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 â 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 â 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 â 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 


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