The Future: What Must Be Done

Posted November 25, 2010

Understanding our starting point: the brink of disaster. The life raft analogy.

• What caused the Great Depression?

Policy Options

• Cut government spending now
• Maintain current levels of government spending
• Increase government spending to restructure the economy
• Quantitative Easing: Economic management through money creation

The Bad Future: large budget deficits and eventual large scale monetization of the debt.

• Protectionism
• Hyperinflation
• Food riots
• Deflation
• Depression
• War
• The Fall of Rome

The Good Future: Restructuring America, Rebalancing the global economy

• Learning from Japan’s mistakes
  • Large deficit spending is unavoidable when a great bubble pops.
  • The deficit will be much easier to finance than expected.
  • Don’t waste the money building bridges to nowhere.
• $3 trillion would resolve the crisis and lock in a new American Century
• How it could be financed:
  • With the pool of bubble money plus cash flow (flow of funds); spare financial capacity.
  • Making to most of the opportunities The Dollar Standard affords the US.
  • Printing money as a last resort. Given globalization’s impact on wages and inflation it is possible.
• Creating miracles
• What’s good for America is good for the world.

A five to ten year window of opportunity exists to resolve this crisis

• The deficits can’t be financed forever. Budget outlook.
• Impediments to action
  • Incorrect conventional “wisdom”
  • Vested interests
  • Muddled economic theory
  • The loss of nerve
• Why we can’t go back the way we came. We are not starting from a laissez-faire Garden of Eden.

A call for reform

• What is the philosophy guiding US economic and political economy?
  1. Who benefits?
  2. Who loses?
• Budgetary reform
• Monetary reform
• Trade reform
• Financial sector reform: credit is dangerous
• Political reform
• Avoiding A Third World America

Policy tools for a new century

• A global minimum wage
• SDRs
• Government investment