World Recession Forces Economic Re-thinking
- Opinión
A serious economic crisis can force some rethinking of economic and political dogma. The current crisis is serious for most of the world; the IMF is projecting world economic growth of just one half percent this year - the worst since World War II - and this number could easily be revised downward.
In the
Today there is a pretty sizeable consensus that deficit spending is very necessary, whatever the Republican leadership may think - if they are thinking at all. This is really just a matter of national income accounting. With consumption and investment falling, that leaves only government purchases and net exports to pull us out of this recession. More on net exports (exports minus imports) in a minute - but for now this part of our economy is not set to grow enough to pull us out of the recession. Hence the need for the government to step in, in a big way.
Of course, this could be just a temporary change in thinking, with desperation focusing the mind. But there are some signs that it may persist. For example, the New York Times reported on Sunday that Obama's projected budget deficit for 2013 is "3 percent of the overall economy, a level that economists consider sustainable." [http://www.nytimes.com/2009/02/27/us/politics/27web-budget.html?pagewanted=1&_r=1]
Indeed this is true, and the arithmetic is simple: if the debt grows at the same rate or slower than the Gross Domestic Product (in nominal terms) it will not grow as a percentage of the economy. That is what matters, not the absolute size of the public debt - a big scary number ($10.9 trillion) that is often thrown around by conservatives. As evident as this is, the major media have almost never looked at the problem in this way before.
Another long-held belief that is currently being challenged in practice but needs to be rethought is the extent to which the government can finance a fiscal stimulus through money creation, rather than by traditional borrowing. The conventional wisdom is that this would dangerously increase inflation. But inflation is falling in most of the world, and in the
The
This has international implications as well. The Obama administration has proposed scaling back at least some foreign aid. Of course, much of our foreign aid is military aid that is often destructive. But it would be a shame to cut back on such life-saving aid that goes to fight AIDS, tuberculosis, malaria, and other diseases that plague the poorest countries - when this funding needs more than ever to be greatly expanded.
On a larger scale, since the dollar has a special status as the world's reserve currency, the
In other words, the
That is because the U.S. dollar is overvalued, and this overvaluation has artificially stimulated our imports and reduced our exports for many years. The idea that the
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- Mark Weisbrot is Co-Director of the Center for Economic and Policy Research in
This op-ed was published by The Guardian Unlimited on March 4, 2009. To reprint it, please include a link to the original [http://www.guardian.co.uk/commentisfree/cifamerica/2009/mar/03/us-economy-obama-currency].
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