Thursday, July 29, 2010

WE need a HUGE stimulus package

In the midst of a global economic calamity of historic proportions that sees deflation stalking every economic sector, we are told by "serious" economists that reflating a crashing economy can only cause inflation.  (sheesh)  The problem is that the economics profession has been taught that inflation--the horror of the investing classes--is the only problem worth addressing.  Sort of reminds one of the old saying, "if your only tool is a hammer, pretty soon every problem looks like a nail."

Yet the economies of the world NEED a jolt of stimulation.  AND there are HUGE problems--the end of the Age of Petroleum, climate change, etc.-- that need to be addressed.  So there we have it--we have tons of work that needs doing and we have millions of increasingly desperate people looking for work, yet we cannot get those two clearly compatible needs together because of some ridiculously old-fashioned notions that our kids learned from batshit insane economic professors.  (I HAVE covered this topic in greater depth.)

One other thing.  Japan is widely portrayed as an economic basket case because they never "recovered" from their investment bubble of the 1980s.  Of course, this is only true if you are a speculator.  If you view the Japanese economy from a real economic perspective, Japan has done very well, thank you very much. Keep this in mind when you see Japan's economy portrayed in a favorable light.

I could bore you with stats but I'll cite two personal examples.  I have seen the evolution to high-definition video close up because I care for systems that can edit high-def footage.  The Japanese (mainly Sony) make the VAST majority of broadcast-quality gear.  My other example involves my beloved wheels.  I drive a 1996 Lexus LS that I bought with 130,000 miles on the clock.  It is still nearly flawless and is by FAR the finest example of manufacturing excellence I have ever seen or touched.  Remember, while Japan's economy in the last 20 years was supposedly going into the toilet, Toyota managed to capture the luxury car market with its Lexus brand against competitors who had been building their brands for decades. We will have Japanese-style stagnation only IF we have Lexus and broadcast video gear dominance waiting in the wings somewhere (we don't.)

Read the whole article--it is VERY good.
No Convincing Economic Arguments Against More Stimulus Spending
Jobs, Stimulus and Debt
In much of the world, including the United States and Europe, a debate is taking place about whether the government’s first responsibility should be to reduce unemployment – which is at elevated levels – or to reduce government deficits and debt. Many of the arguments for deficit reduction are simplistic, based on ignorance, or ideologically-based. For example, there are inappropriate comparisons of government to household debt, a fixation on absolute numbers without any comparison to national income, or just right-wing opposition to government in general. Although these are the most commonly propagated views on television and through the media, it is worth taking a moment to examine the (ostensibly) more sophisticated and economics-based arguments and see whether they hold water.
Kenneth Rogoff is professor of economics at Harvard University and a former chief economist at the International Monetary Fund (IMF). This week he responded to some of the pro-stimulus arguments:
“Some portray Japan, with nearly a 200 percent government debt to income ratio, as a poster child for extremely indebted countries with low interest rates. Japan’s 'success,' of course, has a lot to do with its government’s ability to sell debt domestically. How the country will handle its finances as saving by retirees shrinks and as its labour force rapidly shrinks, remains to be seen.”
Some background: Japan has a gross debt-to-GDP ratio of about 227 percent of GDP. This is more than three times the level of the United States. But more than 100 percentage points (of GDP) of this debt is owed to the Japanese central bank. This means that the interest payments on this debt go to the government of Japan, so there is no interest burden added by this part of the debt. In fact, Japan’s net interest payments are less than 2 percent of GDP, which is a modest amount.
It also means something else that most of the economists in this debate are not eager to talk about: Japan has financed nearly half of its public debt by creating money. In otherwords, instead of the government borrowing money from investors, the central bank created money and lent it to the government. In the popular imagination, this creation of trillions of dollars (in yen) to finance government deficits has to cause serious inflation. However, the Japanese experience has been the opposite: Over the last 20 years, Japan’s consumer price index has risen about 5 percent – that’s the 20-year total, not annual inflation. more

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