Krugman wrote:
>Then there's Japan. After years of immense spending on public works,
>Japan has a debt of 130 percent of G.D.P. - and it, too, has an aging
>population. So it can do no more by way of fiscal policy; in fact,
>retrenchment is the order of the day.
I can see that there's been diminishing returns to public works spending
there, but that doesn't mean that fiscal policy is down for the count. The
government could nationalize all of those bad debts that we hear about,
simply paying the banks for the bad loans at face value. It could give
"tied" aid to people in poor countries (such as those in East St. Louis,
Illinois), aid that must be spent on Japanese goods. It could shore up its
public pension system so that people don't want to save so much.
BTW, it's irritating when pundits are sloppy. In the above, is the "debt"
that of Japan as a whole? (no) or of the government? (yes) How does this
debt compare to other countries? The US survived a period when its
government debt exceeded 100%. Why can't the second richest country in the
world do so?
and what's wrong with an aging population? I don't think biology is destiny.
>America does, of course, have its tax cut. But the peculiar
>"back-loaded" timing of that cut makes it a very poor
>recession-fighting measure. The rebate checks are not much more than
>pocket change - $40 billion, or 0.4 percent of G.D.P. The big tax
>cuts, which will eventually rise to almost 2 percent of G.D.P., won't
>come until the middle of the decade. And the decision to lock in
>trillions of dollars in future tax cuts actually depresses the economy
>now, since those future cuts do little to encourage current consumer
>spending but do raise long-term interest rates.
On the other hand, the "life cycle" and the "permanent income" hypotheses
suggest that rich people -- those who can afford to plan ahead and are
getting the lion's share of the back-loaded tax-cut -- will see future tax
cuts as a reason to spend now, perhaps counteracting the negative wealth
effects of asset deflation.
>Can we pump up the economy with additional tax cuts or temporary
>public spending? Not safely; those huge future tax cuts have created a
>grim long-term financial outlook, and any further tax cuts would make
>the outlook even grimmer. Of course, the administration might do the
>responsible thing, making room for additional tax cuts now by
>canceling some of those big tax cuts scheduled for 2004 and later. And
>pigs might fly.
Henry Kissinger's been in airplanes, no?
>It's a dismal picture: a combination of intellectual confusion,
>narrow-minded officials and sheer fiscal folly has removed most of the
>tools that the world's major economies might be able to use to help us
>get through these troubled times. The only institution that isn't
>paralyzed is the Fed, which keeps on cutting rates, hoping that it
>will finally accomplish something. Or to change metaphors a bit, the
>whole burden of avoiding a global recession now rests on Alan
>Greenspan's shoulders.
>
>Presumably Atlas won't shrug. But what if the task is beyond his
>powers?
we should remember the problems that can block the effectiveness of
monetary policy: (1) pessimism (perhaps due to asset deflation); (2) unused
capacity (cf. US manufacturing); (3) over-building (something that looks
like it's happening now); and (4) excessive private sector debt (both for
consumers and as the economy slumps, for corporations).
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~JDevine
"From the east side of Chicago/ to the down side of L.A.
There's no place that he gods/ We don't bow down to him and pray.
Yeah we follow him to the slaughter / We go through the fire and ash.
Cause he's the doll inside our dollars / Our Lord and Savior Jesus Cash
(chorus): Ah we blow him up -- inflated / and we let him down -- depressed
We play with him forever -- he's our doll / and we love him best."
-- Terry Allen.
