You may remember I have posted before on the rather large subject; as usual my own thoughts are nothing but a hodgepodge of stuff I picked up elsewhere and I rely on friends much more competent than myself for help in reordering them.
Sensing my profound uneasiness with all things related to macroeconomics, Jack offered some reading suggestions – the first is “End this Depression Now” the latest book by Paul Krugman (who even I had heard of), perhaps the leading saltwater economist, Princeton professor, 2008 Nobel prize winner and all. Those who enojoy watching the sons of Keynes fight with the sons of Friedman know that both sides sound articulate, well-backed by facts and thoroughly researched. With the effect that you leave the debate in the exact leaning you had beforehand, and fortified with the opinion of some Nobel laureate of the same inclination.
In other words, nothing changes: half of the world continues to think Keynes and the other half continues to think Friedman.
The book is no exception: pleasant and well-written (professors IMHO tend to write better books than other authors, perhaps because they set out to teach and therefore help the reader to remember the key points, summarize their thoughts, make explicit references…) but I must confess the most interesting part for me was the postscript.
For even Krugman admits his keynesian viewpoint is politically controversial, and therefore has been rarely applied in its fullness. Rarely does not mean never:
[…] during the 1930s European nations entered, one by one, into an arms race under conditions of high unemployment and near-zero interest rates resembling those prevailing now […] spending changes driven by that arms race had a big impact on output […]
[…] Big spending programs rarely happenexcept in response to war or the threat thereof […]
Translate: the only way to achieve political consensus to apply the keynesian cure of a big public spending program is when there is a threat of war.
So here is what scares me about the upcoming cusp: it’s either going to run us into another World War or into never-charted-before territory. The problem is that we are lacking an enemy large enough to justify a World War. Al-Qaeda, Saddam Hussein, the Taliban have all been tested, but they cannot bear the brunt of the world going at war with them: at most, they support a pesky little local war with very limited deployment of troops and weapons, but you can’t kick start the world economy on fighting insurgents in Mali, can you?
The U.S. can’t really fight China who have become largely their landlords; Russia has lost its imperial appetites and finds it much more interesting to amass wealth leveraging its immense natural resources; perhaps our hope is to find some really nasty flesh-eating insect on some exoplanet who irrationally just wants to wipe us off the galaxy.