Mandel: Only two ways out of this mess
Michael Mandel in the Atlantic on the path forward:
It all comes down to this: We have to match growth to debt. If we can't create miracles from growth, we have to consider inflation to reduce the value of our debt. We have only two ways out of our current global economic mess: innovation and inflation. And as the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation).
Growth equals productivity (innovation) increases plus population (labor force) increases. So over the long term there is a third alternative: Having lots of kids or inviting in lots of productive immigrants. Each is problematic, including the pressure these would put on scarce resources and the time they would take to have macro effects.
But without one of these ways out, we may end of taking the fourth alternative: turning Japanese.
Comments
1. There's another option: haircuts. Greek debt holders just took a 50%er. Inflation is a form of default, the only difference is it spreads those losses out on everyone, even those who weren't a party to either side of the debt transaction. True default, like the Greek deal, keeps the losses privatized instead of socialized.
2. Japan in the 1990's was horrible for investors, but it was great for workers and consumers. Classifying them as some horror story is simply a lie that is perpetrated by the investor class. Specifically, real GDP per capita grew 50% from 1990-2000, and unemployment never exceeded 5%. Lost decade??? Oh, yes, their broad index fell by 50% and real estate fell by 75% in some areas, and to the investor class that is how you measure the wealth of a nation.
Posted by: Josh Dowlut | October 28, 2011 9:49 AM