What Do Economists Say?

fandlilApril 19, 2009

The latest issue of BUSINESS WEEK nicely points out that highly respected scholars of the science of Economics famously disagree on how best to deal with the current crisis. Some are opposed to the stimulus package and feel the best and fastest way to get out of the mess is to let failed banks go under, and let market forces put things back in place. Others believe that only a really large stimulus package can get the economy moving again.

Needless to say, those who oppose the simulus package are usually of the Republican persuasion, and those who support it are of the Democratic persuasion.

Those opposed say that FDRs stimulus package actually prolonged the Great Depression. Those in favor say the Depression was prolonged because FDR started reducing the stimulus prematurely around the mid-1930s when he should have continued or enhanced it. They also point out that the Japanese "lost decade," the 1990s, was unnecessarily prolonged for the same reason, the Japanese pulled back on their stimulus package prematurely.

Among the economists who favor big stimulus are Nourani, from NYU, who actually predicted the worldwide collapse in all its detail months before it happened, and Krugman, from Princeton, a recent Nobel laureate, who has said recently that the early signs of a recovery are very weak and should not prompt a pullback in stimulus. In other words, we should not repeat the mistakes made by FDR in 1934-5, or by the Japanese in the mid-1990s.

Krugman has written a book, THE RETURN OF DEPRESSION ECONOMICS & THE CRISIS OF 2008, in which he details the seachanges in the socio-economic system we will undergo in the next decade or two.

I am not familiar in detail with the views of economists who are opposed to the stimulus package. All I know is that, as far as they are concerned, the best course of action is to do nothing. I would appreciate hearing from readers of this post who can say more about the views of economists who are opposed to the stimulus package, and how they see things would evolve if they had their way.

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Lay nine economists end to end ...

... and you'll get ten opinions ...

... (as long as some of them are not asleep at the time).

If there's to be a bailout/stimulus/whatever ...

... wouldn't io be better to feed it through the banks which were provident through the whole mess, rather than through the ones who proved themselves incompetent ...

... and then felt that it was their right to go off to an expensive conference in a distant exotic place ...

... and collect those "bonuses" ...

... though, to be fair, some said that they were paid peanuts for months, with the deal being that they were to get a bonus if they succeeded in turning things around - I don't know whether that was part of the deal.

ole joyful

    Bookmark   April 19, 2009 at 2:31PM
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I think they had to do some sort of stimulus. My problem is with how they are doing it. They are giving money to private industries who have failed miserably. Why couldn't they have done the following:

Give money to firms that were doing well and tell them the money is for them to continue to grow. Rewarding incompentence makes no sense. Letting bad firms go out of business, does make sense.

Don't just give money away, but pass a series of new regulations to prevent this mess from happening again with the money. Does anyone remember accountability?

How about using the majority of the money to fix our failing infrastructure? Sounds like more jobs and better roads/bridges to me.

Here's one, how about taxing the HEXX out of imports of products from companies/countries that don't meet certain criteria (no slave labor, no child labor, livable wages, healthcare, etc) This sounds like it might make it more attractive for manufacture in the USA or at least put American workers on a level playing field w/ the rest of the world.

Something had to be done but it is a disgrace as to how it is being handled. I don't think our government can solve any problem where "spending more money" isn't the answer.

    Bookmark   April 20, 2009 at 1:24PM
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chrisdoc, I'm very glad you aren't running the US, it's economy, and international relations with other US partners. Everything you suggest, IMO, would make the 1929 depression look like child's play and we'd be in trade wars right and left with civil wars rising all round the world.

haus proud, If you google 'free market economists', you'll find answers to the questions you raise.

    Bookmark   April 22, 2009 at 7:22AM
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kec01: so the global economy woudn't survive if we let flawed business go bankrupt? We should keep up the "privitize profits and socialize losses" policy that has gotten us this far?

Or are you saying that the world is a better place w/ slave labor and 9 yr old kids working in sweat shops as long as it isn't happening in your neighborhood?

I'm all for a free market as long as we are on a level playing field. Why should US workers have to compete w/ foreign companies that exploit impoverished workers?

    Bookmark   April 22, 2009 at 8:02AM
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What kec01 is saying is that everything you suggested was tried in the early '30s with absolutely disastrous consequences.

    Bookmark   April 22, 2009 at 9:55AM
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Do you have a refrence? I'd be very interested in reading about that.

    Bookmark   April 22, 2009 at 11:36AM
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Google Smoot-Hawley Tariff Act.

    Bookmark   April 22, 2009 at 1:12PM
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Google Smoot-Hawley Tariff Act.

...and the "National Industrial Recovery Act" and the "Agricultural Adjustment Administration"

    Bookmark   April 22, 2009 at 2:11PM
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I took a quick look at the Wikipedia entry for the Smoot-Hawley Tarrif Act (obviously a thorough academic anaylsis LOL). That act focused on raising tarrifs on imports to assist American farmers.

The difference between that Act and what I was suggesting is that looks like this Act focused on specific goods and not countries. So they were taxing Canada and Europe (who are obvious large trading partners w/ the US). I'm proposing applying the tarrifs on countries where there are less structured laws protecting workers like Central America and Cambodia (who I would not expect to be large importers of American goods). Therefore, I don't believe that what I suggested would have nearly the same type of imapact as what the Smoot-Hawley Tariff Act.

    Bookmark   April 23, 2009 at 8:18AM
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There are some who say that a pure free market capitalist system is rooted in exploitation of the disadvantaged and exploitation of the environment. It also thrives only when an expansionist strategy is feasible -- expansion when there are new lands to settle and develop, when the population is booming, when new products become available and can be rapidly injected into the market (typically at the expense of the environment).

Since the human race is approaching the limits of its penetration into the planet, and we are beginning to see the limits in available natural resources, the time will come soon when the capitalist system will face its most serious challenges.

What we've seen with globalization since the collapse of international communism has been very positive in many ways -- cheap goods made in China and elsewhere, expanded US exports, better standard of living in most of the developed world and in some of the third world countries that have participated in the globalization trend.

But there have been losers, and some ridiculous consequences. The loss of a really robust manufacturing base in the US and the consequent loss of many, many good paying jobs is not good long term for our security or the health of our economy. There is a hidden price we pay in environmental degradation when things are manufactured thousands of miles away from where they are consumed -- the fossil fuels that are burned and the green houses gases that are released into the air to transport goods long distances are important considerations that indicate that the globalization model that we've benefited from in recent decades is not sustainable long term.

I was shocked and outraged a few weeks ago when I read the label on a jar of applesauce I wanted to buy. The apples' countries of origin included Brazil, China, and numerous other far away places. I thought we are one of the premium growers of apples. Thee is no earthly reason why we need to get apples for applesauce from outside our borders. The reason is obvious -- because the worst apples are relegated for applesauce, you can get away with the cheapest you can find, even if they come from the other side of the planet. So from now on, I only buy applesauce after establishing that they come from the US.

The Environmental Defense Fund has for years been promoting, with limited success, the idea that capitalist principles can be applied to initiatives aimed at protecting the environment, by factoring into the cost of things the cost inherent in the environmental pollution generated in the manufacturing process. There are of course many large corporate interests that are strenuously opposed to that approach, and complain that it would hurt business to do that because it would raise the cost of things. They are of course correct. But I think it is not inappropriate to draw a comparison between that debate and the debate about the abolition of slavery some 200 years ago. Putting aside the immoral and humanitarian outrage associated with slavery, it was considered good for business and those who profited from it strenuously opposed its abolition, and they prevailed for many decades. (In some respects, the legacy is still with us.)

So I think it is appropriate to ask: What are the TRUE costs of a business model, and is it sustainable in the long term? Obama and his associates have been trying to ask these difficult questions, and pointing to new directions we need to turn toward if we are to continue to thrive. The proposed changes are of course very costly, but in the end will benefit us all.

    Bookmark   April 23, 2009 at 3:05PM
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Seventy years ago ... horse-drawn wagons hauled blocks of ice down city streets to put into ice-boxes to keep food more or less cool.
In the country: pan of cold water in the basement.

Sixty years ago ... they started to build refrigerators.

Fifty years ago ... they built a refrig that'd last for 40 years.

Thirty years ago ... they had technology that, though computers were primitive, could put men on the moon.

Ten years ago ... they built a refrig that quits after 10 years. And, with sealed operational units, can't be repaired.

When I talk to God ... how can I justify such waste?

We need to insist to the makers of refrigerators that they build them (once more) to last for fifty years!
Even if, as they'd be very little more expensive, I were to buy one for me ... and one to contribute to someone in the Third World (rather than five for me, right?)!

And build five times as many ... to meet the needs of many poor folks in the world who've never been able to afford one. And lose precious food.(1)

Which will need more power ... so we need to build environmentally friendly generating systems (read: solar/wind ... and small, which don't lend themselves to enthusiastic acceptance by the rich and powerful that like to be at the head of large corporations that arrange to have them provide an ongoing income from big facilities).

Plus .. the people in countries with improving lifestyle like TVs ... and rechargeable batteries for cell phones, etc.
While the transfer towers for the cell phones need power, also.

Think conservationist. And high quality things ... which will last longer ... for more people.

Planned obsolescence ... making more junk (to build a mountain within a couple of miles of my house) with no regard for the impoverished of the world ... is disgraceful.

When God talks to me ... do you think that S/He, who conserves/reuses/recycles everything in nature ... will encourage me to carry on with such selfish wastefulness as has been our lifestyle for a couple of generations??

ole joyful

1. For simpler/cheaper saving of precious food in the Third World - let's simply build rat-proof storage places for plain food, e.g. grain ... remember - the rats eat first! (And sh!t everywhere ... including where they eat!) (Yes - prior to altering *the word*, I got censored).

Remember mice in your house??

Prior to going upscale - farmers used to say "manure" as a four-letter-word!

o j

    Bookmark   April 24, 2009 at 4:33PM
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Thanks, ole joyful. Your comments are well taken, especially your observations about refrigerators. but there is hope. Consider two things: I read just a few days ago about the invention of a solar oven that very efficiently cooks food so it can eliminate the need for polluting open fires in the third world. It's easy to operate and it costs next to nothing to manufacture in large quantities. BILL GATES, ARE YOU LISTENING? Another observation: automobiles pollute a lot less than they used to and last a good deal longer than the old clunkers from the 1950s and 1960s. However, it is sad to say that the American Big Three were not the prime movers responsible for those improvements -- the Europeans and Japanese were.

Some say the collapse of the Big Three is long overdue. What's the lesson to draw from this? If you're big and you fail, you can limp along almost indefinitely before reality finally catches up to you. This is true of large dysfunctional entities, whether they be corporations, regimes, religious institutions, or whatever. However, if you're small and you fail, you fall flat on your face. Too bad.

    Bookmark   April 24, 2009 at 7:38PM
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