Tweet
I just finished reading this book. I think Duncan did an excellent job of concisely describing the problem (a credit-fueled boom coming to an end because the private sector can no longer expand). His proposed solutions I'm less certain about. He believes there are 3 possible outcomes:
His position is the austerity is a non-starter in a democracy. U.S. citizens simply won't accept it once they realize how catastrophic the effects would be, and it's human nature to choose to "die later rather than die today", as he likes to say in the book.
Therefore, he argues that it's inevitable that the government will spend. He points out that Japan started with a debt 60% of its GDP when its crisis began in 1990, and is still limping along with a debt of 230% of GDP. He acknowledges that Japan has different circumstances than the U.S., but believes that there's no reason the U.S. couldn't expand its debt up to 150-175% of GDP and continue with business as usual for another 5-10 years.
This is exactly what would happen if the government chooses #2 above. At the end of that period, the game would be up and we'd enter a massive depression with dire economic, social and geopolitical consequences.
His proposed remedy, then, is #3 where the government spends massive amounts of money just as they did in #2, but instead of financing consumption they invest in the productive economy (he doesn't use that phrase, or TECI, but it sounds like he's talking about the same thing). The example he uses is the government investing a trillion dollars into solar energy. He claims that if this happened, it would not only generate a massive ROI but also solve the energy problem in one stroke.
I think he's far too optimistic about the potential for renewables, especially when it comes to replacing liquid fuels (and he doesn't address where people will get the money to buy their brand new electric car, even if such cars and the infrastructure to support them were made available by the stimulus/investment). But it sounds like his prescription is not too far away from EJ's?
I'm curious to know if any of you have read this book, and what you think of it.
- Austerity.
- Fiscal stimulus that boosts consumption but has no effect on the productive economy.
- Massive government investment in the "new economy" (green tech, biotech/GE, etc.)
His position is the austerity is a non-starter in a democracy. U.S. citizens simply won't accept it once they realize how catastrophic the effects would be, and it's human nature to choose to "die later rather than die today", as he likes to say in the book.
Therefore, he argues that it's inevitable that the government will spend. He points out that Japan started with a debt 60% of its GDP when its crisis began in 1990, and is still limping along with a debt of 230% of GDP. He acknowledges that Japan has different circumstances than the U.S., but believes that there's no reason the U.S. couldn't expand its debt up to 150-175% of GDP and continue with business as usual for another 5-10 years.
This is exactly what would happen if the government chooses #2 above. At the end of that period, the game would be up and we'd enter a massive depression with dire economic, social and geopolitical consequences.
His proposed remedy, then, is #3 where the government spends massive amounts of money just as they did in #2, but instead of financing consumption they invest in the productive economy (he doesn't use that phrase, or TECI, but it sounds like he's talking about the same thing). The example he uses is the government investing a trillion dollars into solar energy. He claims that if this happened, it would not only generate a massive ROI but also solve the energy problem in one stroke.
I think he's far too optimistic about the potential for renewables, especially when it comes to replacing liquid fuels (and he doesn't address where people will get the money to buy their brand new electric car, even if such cars and the infrastructure to support them were made available by the stimulus/investment). But it sounds like his prescription is not too far away from EJ's?
I'm curious to know if any of you have read this book, and what you think of it.
Comment