Monday, December 22, 2008


By Carl

Paul Krugman won his Nobel honestly, to say the least. Today, he puts forth the following proposition:

A few months ago a headline in the satirical newspaper The Onion, on point as always, offered one possible answer: “Recession-Plagued Nation Demands New Bubble to Invest In.” Something new could come along to fuel private demand, perhaps by generating a boom in business investment.

But this boom would have to be enormous, raising business investment to a historically unprecedented percentage of G.D.P., to fill the hole left by the consumer and housing pullback. While that could happen, it doesn’t seem like something to count on.

A more plausible route to sustained recovery would be a drastic reduction in the U.S. trade deficit, which soared at the same time the housing bubble was inflating. By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending.

I agree. I think the largest concern for the American economy over the past decade or so has been the transnationalization of our debt.

Think about it: the Chinese, British, and Saudis (as well as other nations swimming in new-found cash) basically have funded not only our national debt, but in turn, our personal indebtedness, including our mortgages.

Our foreign policy has followed suit, you might have noticed. The Iraq invasion was as much a pretext for getting money from the House of Saud as it was for "protecting America from terrorism".

Too, once these foreign governments found themselves swimming in American paper, the more risk-tolerant governments began buying up American private instruments: corporate bonds, securitized mortgages, credit and auto loans, things like that. Better return
for only slightly higher risk.

I'd got so far as to make the observation that the change in bankruptucy laws that made it nearly impossible for Americans to walk away from debt was less about the banking lobby and more about not knifing our allies in the back.

Once this house of cards began to topple (and this really is only the beginning), much effort was put not into prevention, as in financing Americans directly, but in staving off the collapse of the mediators: the banks and brokerages.

You see, we're stuck paying these bastards off for stuffing our mailboxes full of solicitations, egged on by a president who's idea of sacrifice is to take our credit cards out and spend, spend, spend! Financing us just brings the problems the institutions have to a head.

What we as a nation need to do, therefore, is to repatriate our owings, if we are to reclaim a recovery of any length and note. You'll notice the last time we had a truly healthy recovery, we were paying down our budget deficits and even making inroads into what was now-laughably called a crisis national debt of $3.8 trillion (it is now over $10 trillion and climbing fast).

The trouble, of course, is that other nations may not take kindly to this domestication of resources and money. China, for example, lives by our imports of their goods. It would be a bit irritating if we suddenly opened factories all across America, and paid people a living wage to make goods that China can produce far cheaper than we can.

Which brings me to some linkage, something that Barack Obama had already proposed on the campaign trail for other purposes, but which can make us a manufacturing powerhouse again without really upsetting our trade with China among others.

To put it in a phrase: green energy.

Right now, we have a nascent renewable resources manufacturing industry. We have the innovative American mind, the entreprenurial spirit with which to create, and the structure to manage and distribute this kind of knowledge around the nation.

More important, we have the idle capacities in terms of both plants and labor. There's not much reason not to insitute this program of weaning ourselves off fossil fuels, weaning ourselves off the notion of "brand, spanking, new", and weaning ourselves of the notion that this kind of work, manufacturing and fabrication, is somehow a dead art in America, that Americans find this work beneath them somehow.

Ultimately, this technology would become an export, and a lion-sized one to boot. We'd be able to balance our trade and budget deficits, and make some paydowns of our national debt, probably just in time for the next recession.

(Cross-posted at Simply Left Behind.)

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