the state

-of bad news; tough choice by jgrimsrud
Monday, 16 February 2009, 14:33
Filed under: -of jgrimsrud, -of politik, -of the outside world

so obama may have improved his position, but according to our nobel laureate economist, his (/our) ship is quite possibly sinking…

the un-optomist, paul krugman

the un-optomist, paul krugman

the worst part: our economy is caught between a rock (debt) and a hard place (falling demand).

the things people and companies do when they realize they have too much debt tend to be self-defeating when everyone tries to do them at the same time. Attempts to sell assets and pay off debt deepen the plunge in asset prices, further reducing net worth. Attempts to save more translate into a collapse of consumer demand, deepening the economic slump.

bank nationalization is increasingly on the table, but krugman has another rosy idea:

If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely…

right, no huge, all-encompassing war to save us all–¡what a shame!  but really, this could frame the political decision approaching (which is a reason to be glad obama beat mccain): do we want a new (post-nuclear) world war to fix our problems, or a massive effort to save the planet from climate change?

both could fit the requirements of scale krugman suggests, and one would preserve a human population on the planet to enjoy all that economic growth.

tough choice…


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