>June 4, 2000 / New York TIMES Green Cheese Rules RECKONINGS / By PAUL KRUGMAN< COMMENTS: I don't have any specific comments, since I don't know enough about Argentina and its economy. Given my ignorance of the specifics of the case, PK's commentary makes sense (i.e., that having a currency that's absolutely hooked to the US dollar severely limits economic policy, in this case encouraging stagnation). I hope that there's a pen-l member out there (perhaps in Argentina) who can fill in the blanks. (I can send you a copy of PK's article if you want.) On a more general level, I hope that the Argentine example doesn't spread to the US (as a WSJ opinion-maker hopes, as quoted by PK). The only way it could work is for the US to hook the dollar to gold. That would encourage deflation, unless large amounts of gold are found. (Of course, the return to a gold standard would create a larger incentive to seek gold... or maybe the US could fix up some scheme where the dollar depreciates at a steady rate compared to gold, so as to prevent deflation. But the political forces that want the gold standard are precisely those that would oppose such a scheme and would prefer deflation.) Another point is that, in an off-hand remark, PK pooh-poohs the idea that an economic prosperity can create imbalances (i.e., barriers to recovery from the subsequent recession), so that a purely demand-side effort at recovery (using monetary and fiscal policy) is extremely difficult. I think that the US stagflation crisis of the 1970s is a point against PK's view here: the fall in the rate of profit from the 1950s to 1970 or so (a result of the "golden age" of US capitalism) meant that demand-side stimulus encouraged more than usual inflation, as did the way in which raw-material prices were pulled up during that era. (The failure of demand-side policy was blamed on an unusually high "natural" rate of unemployment. When "nature" is blamed, it's a good sign of ideology at work.) In the current economy, the accumulation of consumer debt (which is currently driving the economy to higher GDP) will be an imbalance holding the economy back after the recession hits. (The same is true, to a lesser extent, of corporate debt.) We may have to apply the medicine that PK recommends for Japan (i.e., an inflationary jolt) to get rid of the debt barrier. Of course, that might make a normal depreciation of the dollar more disastrous, given the response to the increasingly large US external debt. Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
