Are Paul Krugman and Larry Summers channeling Asylum Watch? It is highly unlikely that either of those two would deign to read this humble blog. That’s okay because they are not the kind of company I seek anyway. In his NYT article the other day, Krugman is agreeing with something Larry Summers has been saying. That “something” sort of, kind of, almost coincides with what yours truly wrote in his post: I Can’t See A Light At The End Of The Tunnel.
In that post I wrote:
It appears to me that when one country takes advantage of the spread of technology and makes a jump in economic growth, other countries see a slowdown in economic growth. In other words, when the next set of “brics” arrives on the scene, the last set of BRICs begins to crumble. We conservatives/libertarians often harp about too many takers and not enough makers (producers). But, what if the trend we are seeing; not just in America but in the world, is that it takes fewer and fewer makers (producers) are needed to produce all the goods and services for which there are consumers.? What if we not only have too many takers, but also too many potential makers (producers)? During the industrial age, innovation generated more and different kinds of jobs. During the IT age, innovation is generating fewer jobs.
In Krugman’s article, he ask a couple of disturbing questions, in the “what if” style:
But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?
Krugman says that one might think that speculations like these belong to radical fringe thinkers. But, now, he continues, the mainstream economists are getting on board. In particular, he wa referring to comments made by Larry Summers and a recent IMF function. He used this quote of Summers:
We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles.
Agreeing with Larry Summers, Krugman writes:
I’d weigh in with some further evidence. Look at household debt relative to income. That ratio was roughly stable from 1960 to 1985, but rose rapidly and inexorably from 1985 to 2007, when crisis struck. Yet even with households going ever deeper into debt, the economy’s performance over the period as a whole was mediocre at best, and demand showed no sign of running ahead of supply. Looking forward, we obviously can’t go back to the days of ever-rising debt. Yet that means weaker consumer demand — and without that demand, how are we supposed to return to full employment?
What Krugman and Summers are saying is that there is not enough consumer demand.And that sort of, kind of, almost is the same thing I was saying in my post. But, that is where any apparent agreement between me and them ends.
Let’s parse this one paragraph from the Krugman article:
Again, the evidence suggests that we have become an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing.
First, I can’t resist pointing out that this has to be the first time Paul Krugman has ever used the word “unsustainable” to modify the word “borrowing”. But, that is an aside. Think about what Krugman and Summers are saying. They are saying that, for America and the rest of the so-called developed world, the current state of their economies is one of “mild depression”, which is the new “normal” and will likely stay that way for decades. The only way we will see full employment and prosperity is if new bubbles occur and if we continue to go deeper in debt. Really! That implies that no bubbles are currently supporting the economy. That is absurd! These two high-priced economists need a reality check. We have bubbles everywhere we look. A short list of current bubbles would include: the national debt bubble, the student loan bubble, the Social Security and Medicare bubbles, the Wal Street asset bubble, state and city pension bubbles, and there is probably another housing bubble building. Not if, but when one or more of these bubbles burst, America and the globalized world are going to find out what a real depression is. And, if I am right about these current bubbles, then the current high unemployment rate becomes the new “full employment rate”. How sad is that?
Well, that’s what I’m thinking. What are your thoughts?