People seem to to be taking issue not only with his Kensian view of how to fix our financial crisis, but the idea that we are in some sort of structural shift in the dynamic of innovation and progress. Stiglitz draws parallels between the Great Depression, where innovations in Agriculture displaced farm workers with mechanization, and then created an oversupply.
Today he concludes that innovations in manufacturing, and offshoring has hollowed out the working class. Cheap Chinese imports and credit, fueled an overhang, inflating bubbles, primarily in property. And now we need a serious effort on behalf of government to put the country back to work, rebuilding infrastructure, education systems and the like. The Great Depression ended with WW2. Hopefully it doesn't come to that!
But hasn't this experiment just happened. China has spent trillions, on high-speed rail, empty cities, and created a property boom that dwarfs that of any economy, ever. Yet their manufacturing and exports are trending in the same direction as the first world. Command economies often get things wrong. Governments think they know best, but frankly that can't be trusted to spend wisely.
The Great Recession we are in now, is the beginning of a new era, one that has yet to fully mature. Business are now under pressure to cut costs. They are not only going to cut staff, but look creatively at doing business more efficiently. Technology, outsourcing, off shoring are all in the mix.
But to say The Great Depression only saw a downturn in demand is seeing part of the picture. Read some of the first hand accounts. People abandoned the economic system altogether. A subsistence lifestyle became the norm. Growing, repairing and barter became the most efficient market to be in. People just didn't buy at any price. And look at anybody who had lived through this time. They knew how to save, even in the good times.
There are two sides on a ledger, many writers forget to include the consumer. Credit growth and money supply are inflating commodities, and deflating currencies. But not changing fundamental demand. Innovation in business practice and consumer habits will drive us toward a different dynamic, that is hard to foresee. Be we are only just beginning the transition.
But to say The Great Depression only saw a downturn in demand is seeing part of the picture. Read some of the first hand accounts. People abandoned the economic system altogether. A subsistence lifestyle became the norm. Growing, repairing and barter became the most efficient market to be in. People just didn't buy at any price. And look at anybody who had lived through this time. They knew how to save, even in the good times.
There are two sides on a ledger, many writers forget to include the consumer. Credit growth and money supply are inflating commodities, and deflating currencies. But not changing fundamental demand. Innovation in business practice and consumer habits will drive us toward a different dynamic, that is hard to foresee. Be we are only just beginning the transition.
