Sunday, August 30, 2009

A lot of people (like the Financial Times) now understand that avoiding a "double dip recession" (which could easily become a depression or "ten lost years")
is of overarching importance now, for the US and for the world. But what can we possibly do to raise demand, in a situation of deficits which are already scary, after a stimulus bill that isn't exactly something we want to do all over again a second time?

In my view -- the usual sort of "300,000 foot level" economic theorizing simply offers no escape and no hope here. But the more concrete things we have been talking about really do offer a big part of a way out, that holds up in real-world economics.

Since this is a tricky issue, I had to write two full pages to do justice to it, even at an elementary level:

Bottom line: with no net increase in federal deficits, and no net increase in taxes, we can create a relatively near-term shift in world oil markets which dramatically improves our balance of payments and stimulates private investment, and increases domestic demand because of the flow of dollars to the US instead of the Middle East.

The goal is certainly NOT to hurt the US oil industry, but to generate a shift in the flows of hundreds of billions of dollars from abroad to the US. The benefits to the US are huge even if no other nations follow our example -- but if other oil-consuming nations like China take similar action, the benefits to the US are even larger.

How else could we increase US aggregate demand without increasing government deficits?

This is a way to generate really solid increases in PRIVATE investment, at a time when other ways to try to do that have reached a point of diminishing returns.

Come to think of it, maybe someone should discuss this with Warren Buffet. The key point is that attention to FUNDAMENTALS is crucial to real economic growth. It's the market "technicians" who always work "at the 300,000 foot level," without looking at what drives the numbers.

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