Once again it looks as though if the world economy is going to have a decent recovery, it rests on the ability of U.S. demand to rise rapidly--and for the U.S. to keep on fulfilling its role as importer of last resort. And there is little chance of this happening.
There is some optimism about Japan, but no more so than there has been every two years for the past disappointing decade. Projections of European growth continue to decline, yet the outlook for policy is for reduced spending and increased taxes as the fiscal stability-and-growth pact begins to bite, and the European Central Bank appears helpless because it is bound by the self-imposed fetters of its inflation target. Emerging markets are not yet large enough to play a material role in the balance of total world-wide demand
For America to be the last hope for the principal source of expanded world-wide demand is worrisome for two reasons. First, America cannot run enormous and growing current-account deficits forever: at some point foreign investors' desire to hold an ever-increasing share of their wealth in the United States must come to a stop, and when that comes to a stop the dollar falls and the stimulus provided to the rest of the world by America's demand for imports ends as well. Second, there are no signs that the U.S. government understands or has the willpower to stimulate the American economy enough to produce rapid economic growth.
Consider, first, monetary policy. The Federal Reserve has pushed the short-term safe interest rates it controls down to remarkably low levels: down to 1.25% per year. Short term interest rates cannot be pushed much lower. Would the limited amount that they could be pushed lower do much to boost demand? Probably not. Long-term interest rates could be pushed significantly lower if the Federal Reserve were to undertake the unprecedented step of mammoth purchases of long-term government bonds. But would the Federal Reserve take that unprecedented step without a severe domestic crisis? A situation in which the U.S. muddles through with growth that is positive but that is slower than the growth rate of potential output is unlikely to call forth drastic action from the Federal Reserve. Yet U.S. growth that is positive but slow is of little help to the rest of the world economy.
Consider, second, fiscal policy. The baroque-era structure of the United States government has always been hostile to the effective exercise of fiscal policy. Attempts to use fiscal policy to stabilize the economy have usually shown up too late to help whatever situation they were intended to affect. Fortunately, they have also usually been too small in magnitude to do significant economic destruction in the context in which they take effect. Whatever tax-law changes the U.S. Congress approves this summer are unlikely to have big effects on the flow of purchasing power to households until April of 2004. Whatever spending increases the U.S. Congress approves this fall will not have significant effects on government spending until the summer and fall of 2004.
Failures in the speed of implementation are, this time, amplified by failures of program design. The London _Economist_ is scratching its collective head as it observes that the Bush Administration proposals are not a short-term economic stimulus: they simply do "not provide the short, sharp boost for which many political leaders, including Mr Bush himself, have been calling." And if and when the proposed tax cuts are fully phased in, they do not provide the $1000 a year addition to the income of 90 million households that the Bush Administration implies they will: instead, they provide more like $250 a year additions to the incomes of typical households--and much larger additions to the income of the crowd making more than $200,000 a year, who are least likely to take tax cuts received and turn around and spend them to boost aggregate demand.
Moreover, looking further out, the long-run botch that is American fiscal policy is increasingly visible and urgent: there is not even a hint of a plan for reconciling the long-term costs of the social insurance state with American taxpayers' limited patience with high taxes.
For most of the 1990s--large-scale financial crises, the coming of AIDS to stagnating Africa, and the problems of transition economies aside--the world economy did well because total world demand was boosted by remarkably good economic policy in the U.S. (starting with the Bush-Mitchell-Foley tax increase of 1990) and by truly extraordinarily good luck in the U.S. There are no signs of good economic policy in the U.S. in the decade of the 2000s. The rest of the world economy will either have to trust that the economic luck of the United States will be even better in the decade of the 2000s than it was in the decade of the 1990s, or make its own luck.
The economy of the world will not improve until we invade Iraq. It's just that simple. The current uncertainty frightens investors. I am hoping that that Bush decides to act no later than the middle of February.
Posted by: David Thomson on January 26, 2003 12:38 PMWell sure, if uncertainty is the issue, obviously then the next thing to do is invade Venezuela (to remove the uncertainty surrounding Chavez), followed in short order by Pakistan and North Korea (who knows what they plan to do with their nukes) and the Saudi Arabia (after all the king is getting old, there are many claimants to the throne and no obvious succession plan).
Posted by: Maynard Handley on January 26, 2003 03:04 PMDavid
How wonderfully pragmatic. Are you the personal spokesman for the military industrial complex? If only we could go to war the economy would improve? If only they would hurry so we can get on with it? On behalf of the Chaldeans, the Kurds, the Dawa and all the other tribes of Iraq I would like to personally thank you. $400 billion/ year that's what your war machine costs. Have you ever even thought about what your military drug delivery systems did to the Veterans of the Gulf War? Or are you just worried about the theoretical economy?
Bruce
David, investment has nothing to do with the recession we're in.
Posted by: Jason McCullough on January 26, 2003 03:34 PM"your war machine"
"military industrial complex"
The "your war machine" allows the parasitical Europeans and similar nations to leach off the United States. Have you already forgotten the crisis in the Balkans? How can a citizen of the so-called European Union have any self respect? Does America always have to fight their battles for them?
Perhaps Oriana Fallaci says it best. “She calls the European Union ‘a club that fornicates like a whore with the Arab countries and fills its pockets with their filthy petrodollars.’” That lady certainly has a way with words. I couldn’t say it better myself.
http://www.nypost.com/postopinion/editorial/67378.htm
David wrote:
"Perhaps Oriana Fallaci says it best. ?She calls the European Union ?a club that fornicates like a whore with the Arab countries and fills its pockets with their filthy petrodollars.?? That lady certainly has a way with words. I couldn?t say it better myself. "
That applies just as well to the current members of the Bush administration. Cheney certainly profited from
Arab money at Halliburton - he even did business
with Iraq and Libya. The whole reason he got the
job at Halliburton is because of his ability to whore
himself out to Middle Eastern countries.
And Bush is clearly a whore as well. There's no other
explanation for why he let the Bin Ladens leave the
country. The Bushes have been selling their asses
to the Saudis for generations.
Man, you've got a bad case of tunnel vision.
"Even if you break your own heart, _They_ will do it for you just the same." Marcus Aurelius
Getting back to the issue at hand, if the U.S. is really the engine of global economic growth, then the policy changes that the U.S. needs to accomplish in order to ensure a speedy recovery of the world economy are almost herculean in nature. Since I have a penchant for utopian, politically non-starting proposals, let me just suggest the following:
(1) Provide some _real_ fiscal stimulus by decreasing tax rates on the lower income brackets, temporarily reducing the payroll tax rate, and providing needed aid for state governments in their fiscal mess. To eliminate the long-run fiscal damage of this intervention, reinstate the estate tax, raise the income ceiling on the payroll tax, and yes, increase the income tax rate on the upper brackets.
(2) This is the third time in 40 years that the U.S. has created serious economic instability worldwide by engaging in irresponsible fiscal expansion. In order to make sure that this doesn't happen again, it's time to eliminate the possibity that the President and Congress can woo the voters during presidential elections through the use of fiscal bribery. Sure enough, this entails giving a non-elected body like the Fed veto power, and maybe even pro-active power, over the Federal budget.
One could accomplish this by (a) allowing the Fed to veto spending and appropriations bills in the same way that the President can do so, (b) allow the Fed to impose a flat-rate income tax on all income above a certain amount (say, $20,000 per capita); this rate can either be positive or negative but should be set at zero during times of low inflation and unemployment (c) allowing the Fed, by a supermajority vote, to slash Federal spending by a flat rate across the board if it judges that the level of spending is unsustainable given potential tax revenues.
(3) Have some means of preventing or at least slowing the U.S. and Europe from engaging in excessively contractionary monetary policies (e.g., to fight domestic inflation) if doing so is likely to push the rest of the world into a full-scale recession. i.e., the anti-inflationary episode of 1979-1982 should have been a fully multilateral undertaking, complete with debt-relief provisions for developing country governments (the Brady Plan may or may not have been to little, but it was definitely too late).
All moot, of course. At this point, both the White House and Congress are in the hands of pirates (I include most Democrats in this category) whose only concern is to make rich the people who finance their election campaigns. No way to make long-term policy, in short.
Posted by: Andres on January 26, 2003 05:56 PMUnelected officials should not have that sort of veto over elected ones. Sometimes democracy has flaws you just have to live with.
Brad says: "For America to be the last hope for the principal source of expanded world-wide demand is worrisome for two reasons. First, America cannot run enormous and growing current-account deficits forever: at some point foreign investors' desire to hold an ever-increasing share of their wealth in the United States must come to a stop, and when that comes to a stop the dollar falls and the stimulus provided to the rest of the world by America's demand for imports ends as well. "
Looks like this might already be beginning, actually.
Posted by: Ian Welsh on January 26, 2003 06:53 PM"Man, you've got a bad case of tunnel vision."
One might be able to make a case about the past actions of some Republican leaders---when the issues were not as clear as they are today. The important thing is that these folks are now taking direct action against the Muslim militants and their partners. Unfortunately, the clowns governing France, Germany, and Canada still remain idiotic and parasitical.
Posted by: David Thomson on January 26, 2003 07:26 PMDavid Thomson wrote:
"One might be able to make a case about the past actions of some Republican leaders---when the issues were not as clear as they are today."
Cheney was SecDef for Gulf War I. He then went
to Halliburton. He certainly knew that Iraq had
used poison gas. He certainly knew that Libya
was involved with the Lockerbie bombing. What
wasn't clear about Iraq that suddenly became clear?
" The important thing is that these folks are now taking direct action against the Muslim militants and their partners. "
No they aren't. They're going after Iraq. They've done
nothing to the Saudis, or any other Arab state. And
the Saudis, if anything, have hampered efforts at
direct action against militants - yet they're treated
with deference.
Alright Thomson, you freedom fighter you, get your ass down to the nearest recruiting station and put it where your mouth is.
Saddle up! Lock and load! ..... Thomson on point!....IN COMING!!!!!!!@#!?!!.....oh shit!!!....Ahhh!!?*?!?!!!......world domination aint as fun as I thought it'd be.....argh...
Well, he died for a good cause. I'm buying a second USV today and my BushCo. holdings are up 10,000%.
Thanks David
Posted by: Cannon Fodder on January 27, 2003 12:17 AMThe US economy is in a mess for itself, regardless of any impact on the global economy. So it needs effective economic management, not ideologically driven tax cuts for the wealthy masquerading as fiscal stimulus.
However, it is also time that the EC/EU and Japan also sorted out their economies - deregulation, lower taxes and freer trade are essential so that the world economy gets more into balance. This is necessary as well so that global recessions are lessened - ie, when USA goes into recession, Europe and Japan can stay buoyant for a lttle longer. As each economy declines, the next picks up. At the moment, when the US fails, the rest collapse as well.
There is a forgotten aspect to the economic analysis and comments posted, which is that a lot of US productivity growth comes from the export of jobs overseas. COmpanies such as Dell now do a great deal of manufacturing overseas; and now also services and research are being done overseas too. It is not a simple case of these countries exporting to the US, but more a case of the wealthiest Americans (ie those who control the major corporations) having moved production overseas so as to import the resulting goods and services more cheaply than they can be manufactured here.
Brad is right in his future history - the working class has been crucified by globalization, and now it is the turn of the middle class. At the moment the USA is heading towards a future of a small immensely wealthy ruling class .... and everyone else.
This has nothing to do with parasitic europeans but everything to do with the logic of American economic and social policies.
David Thomson's first post had it right, for reasons having nothing to do with the justifiability of the war. We simply do not need another round of risk aversion in this environment.
The 1990-91 Gulf War also featured this paradox. Once the war was underway and it was clear it would not be a long one, oil prices dropped and equity markets started to recover. Pre-conflict uncertainty had been problematic. Post conflict, investment and financial markets rallied sharply.
This time around a cold calculating investor might make the same bet. There is a chance that this war may be a lot more complicated, of course.
Posted by: Jim Harris on January 27, 2003 06:21 AMNothing has changed in the last 24 hours. We have reached the point of no return. The economy of the world cannot improve until we invade Iraq. I am also convinced that many posters do not consider war as a last resort. They are against war for any reason whatsoever. It might behoove a few people to study about how the pacifist movement was greatly responsible for the horror of Adolph Hitler. World War II could have been easily avoided if the Allies had taken effective action in the mid 1930s.
Posted by: David Thomson on January 27, 2003 06:37 AM“Cheney was SecDef for Gulf War I. He then went to Halliburton. He certainly knew that Iraq had used poison gas. He certainly knew that Libya was involved with the Lockerbie bombing. What wasn't clear about Iraq that suddenly became clear?”
Huh? Cheney was a member of an administration that was voted out of power! Correct me if I’m wrong, but wasn’t some guy named Bill Clinton in the White House during the last few years of the Twentieth Century?
“No they aren't. They're going after Iraq. They've done nothing to the Saudis, or any other Arab state. And the Saudis, if anything, have hampered efforts at direct action against militants - yet they're treated with deference.”
We have increasingly put more pressure on the Saudi government. They are no longer getting a free ride. The same holds true for the rest of the Arab states. King Abdullah of Jordan, for instance, is definitely on board.
Posted by: David Thomson on January 27, 2003 06:52 AM“David Thomson's first post had it right, for reasons having nothing to do with the justifiability of the war. We simply do not need another round of risk aversion in this environment.”
Gosh, I have a fan. Someone recognizes my intellectual brilliance other than my mother. Indeed, my original comments had nothing to do with the rational justifications for military actions. The world is threatened with a deepening recession because of the current uncertainty. I am utterly convinced that the markets will not settle down until Saddam Hussein is removed from power.
David Thomson writes:
"How can a citizen of the so-called European Union have any self respect? Does America always have to fight their battles for them?"
-Well, after hearing today that the U.S consider nuclear bombs an option concerning a possible attack on Iraq, I wonder how you can be an american without feeling terribly embarrased. And the argument that the U.S needs to go to war with the Iraq is extremely ignorant and frightening. Kill some arabs so the US economy can boost (even though it's far from clear it would have a positive impact) ?
What would you say if Nort Korea argued in the same way? Oh, well, of course, then they are one of the evil axes. If the US government is serious in their talks about nuclear weapons, us living in civilized nations understand that US certainly are one of the most dangerous axels of evil of them all.
Posted by: Mikael S on January 27, 2003 08:48 AMDavid Thomson writes:
"How can a citizen of the so-called European Union have any self respect? Does America always have to fight their battles for them?"
-Well, after hearing today that the U.S consider nuclear bombs an option concerning a possible attack on Iraq, I wonder how you can be an american without feeling terribly embarrased. And the argument that the U.S needs to go to war with the Iraq is extremely ignorant and frightening. Kill some arabs so the US economy can boost (even though it's far from clear it would have a positive impact) ?
What would you say if Nort Korea argued in the same way? Oh, well, of course, then they are one of the evil axes. If the US government is serious in their talks about nuclear weapons, us living in civilized nations understand that US certainly are one of the most dangerous axels of evil of them all.
Posted by: Mikael S on January 27, 2003 08:50 AMSorry, it should be:
And the argument that the US needs to go to war with Iraq just for boosting the US economy, is extremely ignorant and frightening. Kill some arabs so the US economy can recover (even though it's far from clear it would have a positive impact at all) ?
“-Well, after hearing today that the U.S consider nuclear bombs an option concerning a possible attack on Iraq, I wonder how you can be an american without feeling terribly embarrased.”
Saddam Hussein must know that in a last resort situation America will use nuclear bombs. It would be foolish to take this option off the table.
“And the argument that the U.S needs to go to war with the Iraq is extremely ignorant and frightening. Kill some arabs so the US economy can boost (even though it's far from clear it would have a positive impact) ?”
The positive economic impact of invading Iraq would only be an indirect benefit. Of far greater importance, is the fact that we must prevent Saddam Hussein from organizing further attacks on the West.
"What would you say if Nort Korea argued in the same way? Oh, well, of course, then they are one of the evil axes.”
That is absolutely correct. We are the good guys--and the North Koreans are the bad guys. Some things in life really are essentially black and white. Indulging in moral equivalency in such matters is ludicrous.
I thought that it was Al Qaeda who attacked us, not Iraq!
Posted by: Adam on January 27, 2003 10:04 AM“I thought that it was Al Qaeda who attacked us, not Iraq!”
Al Qaeda attacked us a number of times previous to 9/11. Also, we know for sure that Saddam attempted to assassinate George W. Bush 41. It is very reasonable to expect the Iraqi dictator to continue attacking America. It is therefore imperative that we deal effectively with both Saddam Hussein and the followers of Osama bin Ladin.
Posted by: David Thomson on January 27, 2003 10:32 AM"Also, we know for sure that Saddam attempted to assassinate George W. Bush 41."- David Thompson
Actually, this is a bit of an overstatement, unless you can point to some proof. Accrding to everything I have read on the subject, we had suspicions that Saddam did this, and that we felt the risk of letting him get away with that trumped our uncertainty. Perhaps you have some better information you would be willing to share. Sy Hersh, writing for the NYer, has provided the most detailed information that I have seen.
Perhaps Bush and company have better info, but Bush was awfully unconvincing with his Inago Montoya moment.
‘Actually, this is a bit of an overstatement, unless you can point to some proof.”
Let’s get something straight right here and now: you don’t give a damn about proof. Deep in your heart of hearts, you are almost certainly a conspiracy buff and no evidence will be deemed reliable and accurate. The Bush administration could release enough evidence to choke a horse, and you’d still remain unconvinced.
Many well meaning folks have been conned into thinking that Bush's opponents simply desire more "proof." Nothing could be further from the truth. No matter what the administration does---the bar of evidence will constantly be raised.
David Thompson:
"Huh? Cheney was a member of an administration that was voted out of power! Correct me if I’m wrong, but wasn’t some guy named Bill Clinton in the White House during the last few years of the Twentieth Century? "
David, the accusation was that Cheney was totally willing to do business with Saddam during the 1990's, when he was CEO of Halliburton (through a wholloy-owned European subsidiary). As CEO of Halliburton, Cheney was presumably in a position to have some control over the actions of the company and its subsidiaries.
Another:
“No they aren't. They're going after Iraq. They've done nothing to the Saudis, or any other Arab state. And the Saudis, if anything, have hampered efforts at direct action against militants - yet they're treated with deference.”
David Thompson:
"We have increasingly put more pressure on the Saudi government. They are no longer getting a free ride. The same holds true for the rest of the Arab states. King Abdullah of Jordan, for instance, is definitely on board."
Ah, 'more pressure'. Like invading them, or actual definable actions? As opposed to harsh words (if that)?
Posted by: Barry on January 27, 2003 12:38 PM
"Let’s get something straight right here and now: you don’t give a damn about proof. Deep in your heart of hearts, you are almost certainly a conspiracy buff and no evidence will be deemed reliable and accurate. The Bush administration could release enough evidence to choke a horse, and you’d still remain unconvinced. "
-Posted by David Thomson at January 27, 2003 11:23 AM
Ya know, David, if they had, then you'd have a point. Since they haven't, (not counting things which turned out not to be so), you don't. And the people who wonder why the administration can't release evidence, or speak the truth, have a point themselves.
David,
"World War II could have been easily avoided if the Allies had taken effective action in the mid 1930s."
Gulf War I could have easily been avoided if the U.S. didn't blunder by supporting and encouraging Saddam's regional ambitions as a counterweight against Iran.
"It might behoove a few people to study about how the pacifist movement was greatly responsible for the horror of Adolph Hitler."
It may behoove you to study how blind nationalism and invocations of patriotism turned normal Germans into accomplices to aggression and mass murder.
"The important thing is that these folks are now taking direct action against the Muslim militants and their partners. Unfortunately, the clowns governing France, Germany, and Canada still remain idiotic and parasitical."
Do you know a damned thing about the politics of these other countries you casually insult? Or what they may have contributed, in both resources AND lives, completely free of charge, to the War against Terror? Don't try to play the "we are the only good guys in the world" card on me, buddy--go read a book about Rwanda or any East Timor and try to tell me that the U.S. isn't hugely reticent to risk a single drop of American blood for anything that isn't direclty in its interests. Neither is France, of course, but there *are* some other countries who do a heck of a lot of things for "free" or only for nebulous goodwill, and your world security environment would suck a lot more without them. Unless you can propose some other places to land your in-bound international flights besides Mexico and Canada the next time there's a major terrorist attack...
Posted by: Eric on January 27, 2003 01:12 PM"It may behoove you to study how blind nationalism and invocations of patriotism turned normal Germans into accomplices to aggression and mass murder."
The blind nationalism of Germany would have been rendered impotent had the pacifists not weakened the resolve of the allies.
And yes, Canadians should be deeply ashamed of their parasitical attitude. Does Canada even possess a sling shot and BB gun to assist on the war of terror? How much of your GNP goes toward defense? .00001%?
Posted by: David Thomson on January 27, 2003 02:23 PMAre you serious at all? You said that we know for sure that Saddam does this or that, and I called you on it, because the most detailed accounting of that event is by Sy Hersh in the New Yorker.
A conspiracy buff? Me, because I think it is relevant to ask for some evidence when discussing a conspiracy? Nice.
“no evidence will be deemed reliable and accurate.”
I am telling you that I looked at the best evidence available and in my opinion, and the opinion of a pulitzer-prize-winning journalist who most closely studied the subject, the case is not all that clear. Notice, too, that I never wrote that it did not happen- I simply pointed out that your use of ‘know for sure’ was a bit of an overstatement. I even hedged it to be polite, allowing you quite a bit more bluster than I should have.
Point me to your evidence David, I would be glad to find definitive proof of what you say, but my sense is that you consistently use phrases like 'we know for sure' when you have very vague ideas about what you are talking about.
"...because the most detailed accounting of that event is by Sy Hersh in the New Yorker."
Wow, is this the same Sy Hersh?:
“Regarding (Seymour) Hersh's 1983 book, The Price of Power: Kissinger in the Nixon White House, Martin Peretz, editor in chief of The New Republic, has written that "there is hardly anything [in the book] that shouldn't be suspect."(The New Republic, Sept. 12, 1983)”
“ZOA National President Morton A. Klein said: "In view of Hersh's record of falsehoods and anti-Israel extremism, as documented by Newsweek, New Republic, U.S.News & World Report, the Jerusalem Post, investigative journalist Steven Emerson, and others, it is astonishing that anyone would ever again take seriously anything he writes, particularly his writings concerning Israel."
Posted by: David Thomson on January 27, 2003 02:47 PMAh! The New Republic is the official institution in charge of the conservative imprimatur... All complaints and disputes are to be sent to the National Review.
Posted by: Jean-Philippe Stijns on January 27, 2003 03:10 PMI am going to have to assume that you are actually serious here, David. Forgive me if I am just not in on the joke- too subtle for me.
OK, so the account that you have obviously not read, is biased because Marty Peretz says so. OK.
But what are you basing your belief on?
This is tedious, but you say "we know for sure." Who is this 'we', and based on what evidence?
Seriously, you should just back down and admit that there was some evidence that Saddam was behind a failed attempt to assasinate Bush I, strong enough that Clinton acted upon it, but that no smoking gun evidence has ever been shown, and that we are not "sure" of much.
Or, provide a link to your evidence.
(Does that really make me a conspiracy buff?)
"But what are you basing your belief on?"
Do you have any idea who Marty Peretz is? He is not only the top guy over at the liberal The New Republic, Peretz is also a close friend and supporter of Al Gore! In other words, this man of the left has no respect for the silliness of Seymour Hersh. The latter is not perceived as credible by sane people. Only the radical Leftist put him on a pedestal. Therefore, why should I give damn what Hersh has to say about Saddam Hussein and the Iraqi crisis?
Posted by: David Thomson on January 27, 2003 05:25 PMDo you have any idea who Marty Peretz is? He is not only the top guy over at the liberal The New Republic, Peretz is also a close friend and supporter of Al Gore!
You forget to throw "hardcore Israel supporter" in to that mix.
Posted by: Jason McCullough on January 27, 2003 06:02 PMI am sorry we sullied this board with this, but David, I will assume that your non-answer to the question that you yourself quoted is a non-retraction-retraction- very Bush on North Korea like.
By the way, I know who Marty Peretz is, and on the topic of Israel...searching for euphemism...he has strong opinions. TNR is really a moderate magazine- Andrew Sullivan was the previous editor.
Any time you want to answer that question...
"I will assume that your non-answer to the question that you yourself quoted is a non-retraction-retraction-"
My "non-answer?" No, I simply realize that you are an intellectualy dishonest individual who will continue to raise the bar of evidence. You are a conspiracy nut who intensely hates George Bush. No evidence will ever satisfy you. You probably perceive our nation's top leader as more dangerous than Saddam Hussein. I met have met so many people like you. During the Cold War, folks like yourself routinuely claimed that there simply wasn't enough evidence against the Soviet thugs. Trust me on this, I've got your number.
Many naive Americans have yet to realize the duplicity and vileness of the radical Left. These clowns will are just going to never endingly demand "more proof." The hard Left wants to see the United States destroyed---and let's be blunt, they are at least unwtting dupes of our enemies, if not traitors!
Posted by: David Thomson on January 27, 2003 06:52 PMRegarding Professor DeLong's initial post, if I may, I would like to ask the following question:
If Europe's and Japan's capital account deficits don't go to finance America's trade deficits anymore, it is worth asking where they're going to end up. Either they go home to fund domestic capital accumulation, in which case we can hope that these two blocks will start to be autonomous engines of growth, unless marginal returns to capital are close to zero over there.
Or they can go to emerging markets (Eastern Europe in the case of the expanding EU), in which case they HAVE TO result in trade deficits in these countries, in which case these emerging markets will be (a myriad of small) engines of growth. Of course, reality could be a mix of both of these phenomena, but what degree, I challenged to say.
Of course, I am simplifying things a great deal in assuming that the total amount of Euro-Japanese net savings stays constant. I just think that there are many places in the world that could usefully accumulate capital: Eastern Europe, China, India, Brazil, Mexico etc. The Return of the Emerging Markets? After all, that would mix well with your 2023 vision, Professor DeLong. The capital for their fast growth will have to come from industrialized countries, it would seem.
On the other hand, starting around 2010, the ederly of the West are going to have to eat their capital, if they will want to eat at all. Temptation will be strong to run trade deficits. But, off the top of my head, I can't seem to think of any block that would be willing and capable of financing these. Unless stratospheric energy prices (unlikely still for a while) enrich former-OPEC countries, Russia and the Balkans...
To all: can we avoid discussing Bush I's assassination attemps by whomever when discussing engines of world-wide growth?
Posted by: Jean-Philippe Stijns on January 27, 2003 07:02 PM"You forget to throw "hardcore Israel supporter" in to that mix."
And what is that suppose to mean? Every decent human being should be an adamant "hardcore Israel supporter." Gosh, does this mean that Jason McCullough (and theCoach) might be followers of David Duke?
Posted by: David Thomson on January 27, 2003 07:20 PM"To all: can we avoid discussing Bush I's assassination attemps by whomever when discussing engines of world-wide growth?"
Yup, even I can be a nice guy once in awhile. But why are some people ignoring the point that Jim Harris and I have made: the world's economy cannot improve until Saddam Hussein is removed? The present uncertainty is playing havoc with the markets.
Posted by: David Thomson on January 27, 2003 07:43 PMErm, David, I point out that Peretz isn't a "stereotypical liberal" like you were implying, and get called a David Duke supporter?
Posted by: Jason McCullough on January 27, 2003 08:27 PMIt appears that some other dude also agrees with me:
“The Price of War
Removing the uncertainty surrounding Iraq could be the best economic stimulus out there.
by Irwin M. Stelzer
01/28/2003 12:00:00 AM”
“The good news is that once the uncertainties over Iraq are resolved, oil prices will return to $20 or less. The lower dollar will begin to stimulate exports.
The recent declines in unemployment claims should soon be reflected in a drop in the unemployment rate. Corporate cash flow is rising. Productivity continues to increase, and that will inevitably be reflected in improved profit performances--real, mind you, not fictitious profits. Competitive pressures are forcing businesses to invest in obsolescing equipment, so that spending on equipment and software rose by 2 percent after falling by 10 percent in 2001. Real incomes are rising, suggesting that any consumer slowdown will be modest. About the best thing the politicians can do is eliminate uncertainty by getting on with the war, winning it quickly, and opening Iraq's oil industry to new investment. That would be a real stimulus package.”
http://www.weeklystandard.com/Content/Public/Articles/000/000/002/175orkwu.asp
Posted by: David Thomson on January 27, 2003 09:39 PM“Erm, David, I point out that Peretz isn't a "stereotypical liberal" like you were implying, and get called a David Duke supporter?”
You are the one who said "You forget to throw "hardcore Israel supporter" in to that mix." My response is posed as a question:
“And what is that suppose to mean? Every decent human being should be an adamant "hardcore Israel supporter." Gosh, does this mean that Jason McCullough (and theCoach) might be followers of David Duke?”
I definitely get the impression that you may have some “issues” concerning Israel. Am I jumping to an invalid conclusion? A true “hardcore Israel supporter” does not need to necessarily embrace the Likud Party. Nevertheless, a decent person should not have problem whatsoever in cheering on the only viable democracy in the Middle East. I often mention David Duke because his views on the Jews and Israel are very similar to those on the far Left. Many Leftist prefer not to admit this to themselves.
Posted by: David Thomson on January 27, 2003 09:53 PMD.Thomson:
Every decent person should, of course, condemn both the terrorising occupation by Israel on Palestinian land, and the suicide attacks by the Palestinians. Why should one be a "hardcore Israel supporter"? Yes, Israel is the only democracy in the region, but that doesn't mean they can get away with all the stupidity they perform, just pointing to the fact that they are at least a democracy. If they are serious in their attempt to become a civilized country, they should also start to act as a civilized democracy, and end the war-provoking occupations.
Posted by: Mikael S on January 28, 2003 03:40 AM"Yes, Israel is the only democracy in the region, but that doesn't mean they can get away with all the stupidity they perform, just pointing to the fact that they are at least a democracy."
I have absolutely no problem with your comments. The far right wing of Israel has indeed exacerbated the tension with the Palestinians. There is no way that I can deny this fact. Yet, let us not ignore the militant Palestinians who wish to impose an Islamic totalitarian state.
These fanatics will settle for nothing less than the complete eradication of all Jews. They pretend to desire a just solution while preparing to send over the next group of suicide bombers.
The whole region is paying the price for listening to the idiot European. The Olso accords were premised upon utopian silliness that foolishly downplayed the threat of the fascist Palestinians. Israel put down its guard and paid a severe price.
The economy will not improve for either the Jews or the Arabs until the Islamic militants are neutralized. Do you really care about the suffering of the Palestinians? If so, you should support the invasion of Iraq. The bitter and envious Muslims only respect power. They must be intimidated by our military might. To paraphrase the old Beetles’ song: give war a chance!
Posted by: David Thomson on January 28, 2003 06:21 AMJean-Philippe Stijns,
My apologies for getting side-tracked. Interesting points. The US baby-boomers have significantly affected every decade by dominating their demographic group, and retirement, and the normal trends toward increases in voting would seem to have a huge effect.
At what point is a trade deficit unsustainable? Where will the pressures be most accutely felt?
Is it realistic to expect that Baby Boomers adding more strength to an already strong voting block will accept even small changes to entitlements? Will they demand increases?
What are the demographics of China and what effects will that have on the next decades?
I would think that the demographic make-up (and AIDS could impact this enormously, right?) of different areas will have an enormous impact on the way our economies evolve- and yet I have heard very little about this except for very general baby-boomer information.
Re: Energy prices, what happens if China (or India) advances much faster than we predict? How high is stratospheric?
I have committed the sin of drifting along with David T before. We should simply all refrain from following-up on irrelevant comments, regardless of how tempting or important it may seem.
>>Yup, even I can be a nice guy once in awhile. But why are some people ignoring the point that Jim Harris and I have made: the world's economy cannot improve until Saddam Hussein is removed? The present uncertainty is playing havoc with the markets.<<
It is undeniable that the current uncertainties regarding the war on Irak weight on markets. But it's not only uncertainties regarding the possibility of a war, it's also the prospect of a war itself. You see, fund managers don't care about war propaganda, they are trying to assess the actual effect war will have on the economy.
Jim Harris' optimisitic scenario assumes a swift victory. While likely, it is far from assured. The greatest threat lies in the effect a second mega-terrorist attack on US soil would have, commited by Iraq, Al Qaeda, or anyone else for that matter.
Terrorists are deluded fanatical monsters but they're not random idiots. They are killers with a (horrible) purpose. If we provide them with a political excuse for a strike, they will be able to recruit and leverage the political effect they are looking for, both at home in the Muslim world and around the world as well. Many Nobel Laureates recently endorsed a statement that, to me, implies that (and more). Economics Nobel Laureates George Akerlof, Lawrence Klein, Daniel McFadden, Franco Modigliani and William Sharpe were among them.
(From this perspective, it is extremely sad for me to note that Osama "Who?" Bin Laden has achieved a great deal of his ambitions: we are increasingly slipping towards what Muslims almost all - as well as many other people - perceive as a religious and neo-colonialist war. It's even sadder to note that the US, with its history of opposition to religious intolerance and colonianism be perceived as doing so.)
Posted by: Jean-Philippe Stijns on January 28, 2003 09:44 AMP.S. I forgot to mention that fund managers are most likely not looking forward to the effect of the cost of the war on Iraq, and subsenquent peace-keeping and reconstruction (unless we're not into "nation-building", in which case we can expect other kinds of costs...) on the federal budget, hence the interest rate, investment and growth (so long as you're the kind of person who doesn't believe the "so-called" law of gravity is an academic conspiracy against star war programs.)
Posted by: Jean-Philippe Stijns on January 28, 2003 10:05 AM“I forgot to mention that fund managers are most likely not looking forward to the effect of the cost of the war on Iraq, and subsenquent peace-keeping and reconstruction...”
The above statement needs to be revised to read:
“I forgot to mention that fund managers are not looking forward to the effect of Saddam Hussein’s terrorist attacks, and subsequent replacement of life and reconstruction.”
Posted by: David Thomson on January 28, 2003 11:24 AMI hate to regret respecting and forgiving people...
Posted by: Jean-Philippe Stijns on January 28, 2003 11:46 AM“Terrorists are deluded fanatical monsters but they're not random idiots. They are killers with a (horrible) purpose.”
It might be best for a certain somebody to find a copy of Eric Hoffer’s seminal “The True Believer.” The Islamic terrorists are nihilists who seek only death and destruction. The typical bourgeoisie life of cleaning out the garage and cooking dinner bores them to tears. They do not seek to live in peace with the West, but to annihilate it.
“,,,If we provide them with a political excuse for a strike, they will be able to recruit and leverage the political effect they are looking for, both at home in the Muslim world and around the world as well”
Please reread the above comment very closely. I don’t think I’m taking this fellow out of context by pointing out that he believes any military action will always worsen the situation; appeasement is our only realistic option. This is totally ludicrous because a bully will only become more contemptuous if you refuse to fight back. The Ghandi mindset is successful only against a democratic social milieu, not totalitarians.
Posted by: David Thomson on January 28, 2003 11:47 AM>>I forgot to mention that fund managers are not looking forward to the effect of Saddam Hussein’s terrorist attacks, and subsequent replacement of life and reconstruction.<<
At least I live in the same world as Robert Hormats, vice-chairman of Goldman Sachs International who served in the Nixon, Ford, Carter and Reagan administrations... He also seem to think that "history is littered with gross underestimates of the cost of war". The economic question is: what is the cost : benefit ratio of this war? Is it <1, >1, or <0? (Hint: I can think of negative benefits - that's called a loss - negative costs don't make sense.) The rest is pure rhetorics.
>>At what point is a trade deficit unsustainable?<<
My take (but there are many answers to this question): when investors start to believe GDP growth becomes smaller than the Trade Deficit : GDP ratio. Sounds like this is already happening. Might explain why the dollar is sinking.
>>Where will the pressures be most accutely felt?
Is it realistic to expect that Baby Boomers adding more strength to an already strong voting block will accept even small changes to entitlements? Will they demand increases?<<
I don't think they'll be able to ask for increases in their entitlements, but they'll certainly lobby Congress and sponsor Presidential Candidates to raise payroll taxes and other taxes falling on the working generations. Now that's not going to be pretty to watch unfold.
>>What are the demographics of China and what effects will that have on the next decades?<<
That's a very good question, although the size of China's economy may not be large enough to matter to the West as a whole before long. I think the answer to this question may depend on China's willingness and ability to develop its own (domestic) market. In turn, this will only be possible if there is some degree of political liberalization.
If current political trends in China, however unsatisfactorily slow in our eyes, are here to stay, I can be relatively optimistic about that. If so, then one can imagine a world in which, over time, China turns into a net exporter of capital, and a net importer of goods and services. Good for growth, bad for the financing the retirement of Europe's, America's, and Japan's ageing population.
>>I would think that the demographic make-up (and AIDS could impact this enormously, right?) of different areas will have an enormous impact on the way our economies evolve- and yet I have heard very little about this except for very general baby-boomer information.<<
True, but I am no expert on this, there may be a lot more than is aparent to my eye. I have found this interesting resource at IIASA. Seems like China's population is ageing too. I don't think this is happening in India, though (tell me wrong if I am, please.) I could imagine a large cohort of Chinese middle-age workers spending like nuts on products they never imagined having access to in their lifetime, and spending the rest to educate their boys (and hopefully, by then, girls as well) in private colleges by the sea... But then again, I don't know anything about how retirement works in China, and even less about how it is going to work by then...
Posted by: Jean-Philippe Stijns on January 28, 2003 01:58 PMI definitely get the impression that you may have some “issues” concerning Israel. Am I jumping to an invalid conclusion?
Yes, you are, and you're being trollish. My Official Opinion, which is totally irrelevant to pointing out that Peretz is pretty much a closet Zionist, is that I can't support either side until they stop acting like idiots. For the Israelis, that's leaving the settlements, and for the Palestinians, that's seriously attempting to stop the bombers.
Posted by: Jason McCullough on January 28, 2003 04:32 PM"I can't support either side until they stop acting like idiots."
This comment makes no sense. You are definitely engaging in moral equivalency. Gosh, were you perhaps a member of Pope Pius XII’s curia? Your support for Israel should be unhesitating and not premised upon the complete happiness of the Palestinians. The Israelis have at most a very small handful of whack jobs who enjoying killing Arabs. These folks have been thoroughly marginalized and play no political role in Israel. They couldn’t get a candidate elected for dog catcher. You obviously prefer ignoring the polls that show that many, if not most, Palestinians strongly support the murder of Jews:
http://www.factsofisrael.com/load.php?p=http://www.factsofisrael.com/blog/archives/000099.html
The Likud Party is in power only because Israel’s goofy Left was seduced by the pacifist European Liberals to drop their guard. Needless to add, Yasir Arafat took full advantage of this opportunity to launch an untold number of terrorist attacks. The majority of Israelis wish to live in peace with their Arab neighbors. Not so, the Muslim militant nihilists who will not stop until they impose a totalitarian theocracy on the whole region.
Posted by: David Thomson on January 29, 2003 02:41 PMWhatever, David.
Posted by: Jason McCullough on January 29, 2003 06:16 PM