|For both Europe and America, the danger now is that politicians and markets believe that monetary policy can revive the economy. Unfortunately, its main impact at this point is to distract attention from measures that would truly stimulate growth, including an expansionary fiscal policy and financial-sector reforms that boost lending.|
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Yes, get them to spend more money...use more resources on crackpot schemes. Give more money to zombies.
Why not? The whole idea is to boost spending. Or as Stiglitz would say, to "increase demand." Well, nobody is more demanding than a zombie...especially when he's got a gun in his hand and someone else's money in his pocket.
Sometimes we wonder. Maybe it's all a big joke.
Everybody knows you can't really become richer by spending. And everyone knows that spending by the zombies is the least efficient and effective spending of all. At least when people are squandering their own money they get what they want...or at lease what they deserve.
But let the feds spend it and you get what the feds want - boondoggle wars, vote-buying giveaways, rewards for the incompetent and inconsequential. Show us a government that spends $2 and we'll show you one dollar that makes people worse off. The other is merely wasted.
Still, the leading economists of our time insist that the feds should pass around more cash...and that somehow this will make us all better off.
Martin Wolf, editor of the Financial Times, has been pushing this dope for years. But poor Mr. Wolf seems to be working himself into a corner. Last week, he caught on to what we've been saying for months. Growth is slowing down. And there's no guarantee it will speed up again in our lifetimes. He's not sure why; no one is. But he cites the work of Robert Gordon of Northwestern University who challenges the notion that economic growth is forever.
Maybe it isn't.
What we noticed is that despite the most fertile ground for growth in the history of the human race, GDP growth rates have declined for the last 50 years. Our bet is that it is because the marginal utility of energy inputs is in decline. But that's a big subject. Too big for today.
Mr. Wolf says he is convinced that Mr. Gordon is right...that developed economies simply won't grow like they used to. "Get used to it," he says.
But Mr. Wolf has some difficult adapting to do himself. He doesn't seem to notice that this analysis undermines almost everything he's written in the last 5 years. He has urged governments to stimulate their economies so their rates of growth would go up. They need faster GDP increases so they 'grow out of' high debt levels. But the evidence presented by Mr. Gordon, cited by Mr. Wolf himself, suggests that the decline in real growth cannot be reversed by economic or monetary policies.
If this is so...and we think it is...then inciting governments to run up debt in a vain attempt to boost growth rates is like increasing the dosage of a known poison in the erroneous belief that it will cure snoring.
But then, if growth is doomed to decline, what can the meddlers do? If you can't grow your way out...what can do you?
Not much. That is the conclusion of Mr. Wolf's column in today's Financial Times. According to a study of debt-larded governments, done by the IMF, when an economy's private sector is lowering its own debt, it is very difficult for the government to do the same. Because the private sector's sales and income revenue is also the public sector's tax revenue. In a period of contraction, in the private sector, tax revenues go down...which puts the feds' budget into serious deficit. That is, roughly, the situation in which all the world's major developed countries find themselves.
It is also the situation in which England found itself in the inter-war period - 1919-1939...and in which Japan has been stuck for the last 22 years. The UK went at the problem like the Tea Party claims to want to. It ran a budget surplus...and took an axe - Geddes Axe - named after the man who headed the budget cutting commission...to spending. But this austerity approach didn't work. GDP barely grew. Unemployment remained at high levels. Eventually, the UK went off the gold standard...the very thing it was trying to avoid. This allowed it to devalue its debts...and reduce its wage levels...which eventually helped sort things out. In effect, it defaulted. It went broke.
Japan has stuck with the stimulus approach. The government sells bonds to finance large deficits. The central bank buys the bonds. Interest rates are at zero. The money flows. Business goes on. And an ever-larger portion of the country's real wealth is consumed by the Japanese feds - most of it on benefits to retired people.
Japan's debt burden grows larger, not smaller...with the final, explosive debt reckoning still to come.
The lesson from all this is what we knew all along. You can't really get rich by borrowing and spending. And you can't expect policy tricks to miraculously relieve you of an oversized debt burden.
Debts are to be suffered ...not erased. The only question is: who suffers? The borrower? The lender? Or everybody else?
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.