Has Our Economy Become Dependant On Bubbles?
from the that-wouldn't-be-good dept
However, there are others sides to the story as well. Joel West points to a recent interview of economists Martin Feldstein and Joe Stiglitz, where Stiglitz worries that we've built an economy based on bubbles:
Joseph Stiglitz: We had the tech bubble, followed by the housing bubble. But once we fix the recent mess, what will replace these bubbles as the engine for the economy?Along those same lines, economist Hal Varian has written, in the Wall Street Journal, a very straightforward and clear explanation of why the economy is stuck in neutral right now. Basically, (and, yes, I'm significantly paraphrasing), there's no new bubble to invest in, so (as Stiglitz implies above), everyone's looking for the government stimulus package to basically act as an artificial bubble until such time as a new bubble rises out of the mess. And, for that to happen in a productive way, any sort of "stimulus" needs to create incentives for others to invest in productive, growth-producing parts of the economy, rather than just throwing cash at pork barrel spending projects. This is a pretty fine line to walk (especially since it's politicians who are working out the details, and they love pork barrel spending).
Feldstein: What will replace the consumer spending bubble?
(Both men): We run the risk of the economy becoming depend on constant stimulus to replace these bubbles.
Stiglitz: I worry that after two years of stimulus, that the economy won't be going on its own, and then what will we do?
And, to make matters even scarier, economist David Henderson points out that recent research from economists Christina and David Romer (it's worth noting that Christina Romer is Obama's choice to chair the Council of Economic Advisers) suggests that gov't fiscal policy in an attempt to modify business cycles doesn't work. In other words, things are going to be pretty messy in the economy for a while, unless we can come up with a productive and useful bubble quickly. Anyone have any suggestions?