Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Saturday, October 09, 2010

The Great [Unknown]

Here's a fantastic post by Brad Delong diving deep into different schools of thought about gluts that cause downturns.

but what if this downturn isn't purely "Keynesian", in the sense of the modern reading of Keynes?

What if it's Marxian--in the sense that people aren't hoarding liquidity, but that they simply don't, after years of stagnating incomes, have the wherewithal to spend (and it will take many years to rebuild their own asset bases)?

What if it's Easternlinian--in the sense that people aren't hoarding liquidity for safety, but because they know that yesterday's toxic, self-destructive junk just doesn't make them happy?

And what if it's [hmm, I'll need to find a reference for this perspective], in the sense that banks and corporations, no matter how much we pump into their coffers, instead of jumping up and employing people here, paying taxes, etc, will simply "arbitrage" regulation, and offshore, tax-haven, and otherwise simply shift it elsewhere?

In the former case, DeLong, Krugman, and the neo-Keynesian kru are exactly right. Stimulate, reboot, prosper.

But in the latter case, we're lost at sea. No matter how much we stimulate, without fundamental, transformative institutional change, there will be no simple, easy return to prosperity.

Argue with me if you like, but I'd suggest--this Great Stagnation is a combination of all the causes above. Stimulation might get us part way to prosperity. But it probably won't, in the end, get us there.

-- umair // 12:49 PM // 2 comments


Just discovered your blog. Love this kind of stuff.

When you talk of a "return to prosperity", what exactly do you mean?

Do you mean the boom boom years after the fall of the Wall? Or the dot com era? Or the cheap-money-post- 9/11 era? Or the housing bubble era?

I mean, the simple truth is that when people talk about getting back to good ol' days, I guess they're thinking about the most recent pop, which was housing. Well, that was a period when the world's most valuable asset (US real estate) got to be very, very expensive and everyone figured he had tons of equity in his house. That's no longer true. And Krugman and his ilk could only hope to make it true again for a brief moment, after which there would be another crash.

I'm a mere English major but this econ claptrap drives me nuts. Our problem is debt (the cost of it) and all the "borrow your way out of debt" guys like Krugman are only offering a short term fix. Equally bad, Obama has created a very unpredictable tax/regulatory environment and the thing investors hate most is unclear policy. Fix these two things and we're good. Anything else will most likely make matters worse.
// Anonymous Jeff Shattuck // 4:31 PM

You might find this 1997 article by Bernard Lietaer interesting:

If you read its focus on currencies (Lietaer is a currency expert) as a stand-in for financialization in the broader sense, it does make some quite prescient points.
// Anonymous Anonymous // 12:08 AM

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