I employed "claims" instead of a more categorical verb, for a couple of reasons. On the one hand, Keynes was much more aware of context whenever he made a recommendation than the scores of economists who followed him in all but spirit. On the other hand, Krugman offers NO mechanism by which yet another money supply can stimulate anything except for a bigger bubble.
Given that Krugman, no less than Nobel laureate for economy, has been calling for a bigger stimulus for about 2 years, at least once a week in his NYtimes editorials, I decided to comment on one of his recent pieces. Here it is:
Krugman keeps talking about stimulus, yet what could a stimulus have done other than reignite another consumption-fueled bubble? And this could be so only if outsiders kept buying US paper.Being treated like adults is a right we gave up long time ago, just see how the other guys keep pushing non-issues such as the Ground Zero Mosque(-rade). Krugman, as if to appease a bunch of kids, is thinking short term and the reason for people like him to ask for stimulus, without a plan to spend it that would actually rebuild our economy, is his complete pessimism and/or his distance from the real economy. The real economy is yet to find a way to move one car 1 mile with Twitter, yet that would be one of the more valuable pieces of American innovation in the last decade.
We should have started rebuilding the country in 2000, yet we cut taxes, started a war on terror, and invaded Iraq in 2003. Bush should have signed Kyoto so the de-industrialization of America could have slowed down. Except that a future Nobel laureate economist was still praising trade liberalization, without concern for the unaccounted negative externalities associated with cheap imports. What was the middle American doing? Playing at the hands of the Government (Bush, Greenspan, Bernake), rating agencies, investment banks, and media&intellectual elites. Anyone still remembers the Republican Congress dealing with such important matters as doping in professional sports in June 2004? The public discourse had been about redoing the desert sands into oases of this and that while the bubbles in housing, defense, banking, healthcare and education (at all levels) were inflating.
At personal level, we should look at lowering expectations and increasing commitments. And, to avoid social collapse, let's make sure everybody puts skin in this game proportionate with their standing. People will mobilize to levels long-unseen if the burden of reinventing America is spread across, in a general climate of fairness. Treating us like responsible adults would be a good place to start. We did it, we'll do it again, just try us!
As a study in contrasts, consider how the Germans have approached their crisis. After 2 years of almost ignored calls for dumping money into banks, the Germans are rebuilding their post WWII cities:
Photo Gallery:A New City Quarter for HamburgThe Germans, sometimes more capitalist than the US, have not fallen for the services economy, or the sanctity of the self-regulating market. They take their time to understand the consequences of their actions, and that goes even for their relation with China.
Living with Sin: Germany Comes to Terms with its Ugliest Buildings (08/20/2010)
SPIEGEL Interview with Architect Christoph Ingenhoven: 'Modernism Is an Attitude, Not a Style' (08/13/2010)
Out of the Ashes: A New Look at Germany's Postwar Reconstruction (08/10/2010)
Interview with Architect Albert Speer: 'Calamity of Postwar Construction Came from Rejecting History' (08/11/2010)
What are the Germans doing, do their cities need a makeover? Be it as it may; I think the Germans are investing in quality, for what else can you do in advanced capitalist economies? Just as I called it in 2008, Encourage quality. And we should say, there is a lot of unmet demand for quality in the US. Unless you are, say, in some northeastern American state going through the annual ritual of re-paving the same traffic-jammed highways.
In closing, let's admit that what passes for stimulus has been of little consequence for the real economy. It was meant to slow down the fall and give the decision makers some time. From that perspective it was a qualified success. A bigger stimulus could only have bought us more time, yet we also needed to signal fiscal responsibility/toughness to our partners. Bernake has just told us that he is willing to move a lot of money from one pocket to the other. I wonder who's going to be caught holding a mountain of paper in their hands. To break the deadlock we need a plan before we need more money.