Simon Johnson: The Real Economic Crisis Is About Growth And Income

Bloomberg News:

The U.S.’s fiscal problem is not that the market questions the country’s ability to pay its debts. The willingness to pay was clearly proved by the outcome of the debt-ceiling debate, when even a majority of Tea Party adherents in the U.S. House of Representatives voted to lift the ceiling (though it would have passed without their votes). We most definitely do not have the kind of solvency crisis experienced by some emerging markets and now, for the first time, parts of Western Europe.

Read the whole story: Bloomberg News

Comments

[El Chingaso]

04:54 AM on 08/17/2011

There's that overused "crisis" word again. Please cease & desist such lack of creativity with editorial.

[american-dolt]

09:41 AM on 08/16/2011

Capitalism has been way over stretched to the point of dysfunction, it now only Benefits the Rich and that plan will never support itself.

[Paros]

09:26 AM on 08/16/2011

Two years ago I decided to fill in the gaps of my education in regards to economics. I began reading about economic history and monetary development. Now I am beginning to develop a general understanding. This is my prelude to my point that Simon Johnson's work is much valued by me. I read your articles and books Mr. Johnson and feel educated and enlightened. You have a great gift.

My initial course of study was in physics which I gave up for a pursuit in philosophy but for many years I have valued the vast array of remarkable books on physics written for the layman. Now I have discovered your writing that is accessible to the layman in the field of economics. My hat is off to you - with great appreciation.

[PRR Fan]

09:53 AM on 08/16/2011

If you haven't already, you should probably read the works of Milton Friedman and Thomas Sowell. Both are excellent, easy to understand authors that would be very instructive.

[Paros]

10:43 AM on 08/16/2011

Thank you for your suggestions. In recent weeks I did read Sowell's "Basic Economics" but though familiar with Milton's Friedman's works I have not yet read any of his works.

[Ice4you]

05:25 PM on 08/16/2011

Milton Friedman is Reaganomics trickle down economy and have been horrible for this country for the last 30 years. I would skip reading him.

[CPAwADD]

11:34 AM on 08/16/2011

You should read Taleb's Fooled by Randomness and The Black Swan to understand that the principle problem with economists is that they don't know they don't know. Their primary problem is epistomological. His perspective goes beyond right vs. left, and you may realize that the study of economics is ultimately a fool's errand because all theories of economics work under certain conditions but not others.

[Paros]

02:22 PM on 08/16/2011

Black Swan is on my list but I was not familiar with his other title. Thank you.
Your summary of his work conforms to my limited experience in witnessing the application of economic theory while I worked at the FTC a number of years ago. (Please read my last reply to PRR Fan just above your own post to which I am replying.)
Not that Alan Greenspan does not fit your point as well. Frontline's piece on Brooksly Bourne and Greenspans response to her nails him on his Wizard of Oz appearance of knowledge and wisdom (highlight the word "appearance." That particular program is well worth the viewing (unless you suffer from high blood pressure.). It is available on the Frontline website.

[cabinetmaker]

08:47 AM on 08/16/2011

over 50% of TP reps voted to raise debt limit ceiling while only 50% of dems voted to do so

[robert kachur]

06:46 AM on 08/16/2011

The company, China Construction America, has won contracts on major public works projects, including the Tappan Zee and Alexander Hamilton Bridges, the No. 7 subway line extension and the $91 million Metro-North Railroad station at Yankee Stadium. .... In one of the largest loans by a single lender in the city since 2008, the Bank of China lent $800 million late last year to refinance a building on Park Avenue housing JPMorgan Chase and Major League Baseball….The Bank of China recently agreed to lend more than $250 million to refinance an office tower at 3 Columbus Circle. The economic chasm between (our banker) CHINA and USA is widening. How many global trade deals or mineral resources (Mines-1 in Afghan & oil wells -2 IN Iraq) has China brokered for while we've been debating our budget? iF YOU'LL NOTE IN THE DEBT CEILING DISPUTE THE ONLY THING THAT BOTH the Republicans and Democrats agree on is that we will pay the interest on our national debt to China before we pay social security, Medicare, our armed forces etc.Meanwhile, on the "morning joe" tv show a guest lifts a coffee cup and reads from the bottom made in china. then says cups and caps are all china makes.

[rolor]

06:16 AM on 08/16/2011

"Nations frequently fail when powerful interest groups block change."

The U.S. is well on its way to adding to this statistic. It's too bad the tea people don't realize they're pawns who are helping to make this happen.

[Paros]

09:29 AM on 08/16/2011

While I think your comment is off topic from the article I do agree with you and I was astounded this morning as I briefly turned to a local talk show and heard a discussion about the problem with raising taxes - just one day after the marvelous NYTs article by Bershire Hathway's founder called for raising taxes on the wealthiest with a very clear argument as to why. The wanna be rich who are in the GOP and Tea Party cannot hear and that is a great danger for our nation.

[AlanBannacheck]

04:52 AM on 08/16/2011

That's because there are limits to growth.

[Paros]

09:31 AM on 08/16/2011

OK your one liner begs for more information.
Why are there limits to growth?
Are you replying to Simon Johnson's article directly? Can you say more?

[AlanBannacheck]

02:58 PM on 08/16/2011

A. We live in a finite planet as far as resources are concerned, and usually economic growth requires then increase of these resources. We have hit the ceiling supply side in oil, tin, helium, and other minerals.

B. There is efficiency, but that to has limits. Right now we have the just in time delivery system of the goods we consume. This is very inefficient insofar energy remains expensive.

C. If the economy was a living entity (it is often refered to as such), it would overconsume itself resource wise and then sputter out and die as constraints began, There are known societies in which this has happened with devastating consequences.

[mashtoe]

02:32 AM on 08/16/2011

If you support work visas then you will get more H-1b type programs that import people with a college degree from places like India. A college degree in India is worth a junior college degree here. Its just not as rigorous as a US state university degree. US universities are uniquely difficult. Our K-12 public education is much easier then the rest but college is very difficult here.

Anyway, I work with H-1b holders all the time and they aren't specially skilled or trained. They are ok. But they do have a real impact on wages downwards. There really are very few jobs in software. And the few good H-1b developers really keep demand down.

So this is why wages are not rising. And this lack of wages is suppressing demand. If there are more programmers but we can each just afford to live then we are not growing. We just sustaining.

End H-1b. And also end free trade. End NAFTA too. Do this and we will see wages rise and then we will see growth.

[OldTulsan]

08:17 AM on 08/16/2011

Amen!

http://www.american.com/archive/2008/july-august-magazine-contents/america2019s-other-immigration-crisis
America's Other Immigratio­n Crisis -- The American Magazine

"By Vivek Wadhwa

[snip]

Moreover, I know from my experience as a tech CEO that H-1Bs are cheaper than domestic hires. Technicall­y, these workers are supposed to be paid a “prevailin­g wage,” but this mechanism is riddled with loopholes. In the tech world, salaries vary widely based on skill and competence­. Yet the prevailing wage concept works on average salaries, so you can hire a superstar for the cost of an average worker. Add to this the inability of an H-1B employee to jump ship and you have a strong incentive to hire workers on these visas. (To be fair, the lobbying platform of these tech companies does include recommenda­tions that the government expand the number of permanent resident visas.)..."

[Paros]

09:33 AM on 08/16/2011

You make a very cogent argument.
Based on Johnson's other writings I believe (assume) he is referring to the visa's which allow current foreign students who are pursuing advanced degrees at America's best universities. This has been an argument that has been made for manyyears now. Correct me if I am wrong but I believe Friedman makes it in his book Globalization.

[jcaunter]

02:30 AM on 08/16/2011

The "growth crisis" is firmly rooted in the declining oil production and no viable alternative to oil.

[McMurdo]

09:33 AM on 08/16/2011

Agree. I would add that the idea that innovation would restore past growth is also flawed. Look back to the 1960s and before, when business processes were largely performed using pencil and paper and the results stored in metal filing cabinets. Roll forward to the present day when business processes are now largely managed via internet connected computers resulting in high end processes like Customer Relation Management and Supply Change Management. This transformation represents a huge growth in productivity that crossed all businesses and all industries. We are not likely to see that kind of technology driven productivity growth again in our lifetimes.

This is not to say there will not be some amazing technological innovations in the years ahead. But most will be rather narrow, business and industry specific, not across the board transformative like we saw before.

[PRR Fan]

09:51 AM on 08/16/2011

Oil production isn't declining. In fact, U.S. oil production has actually gone up and that's despite the Obama administration's best eforts to block it, particuarly in the Gulf. The primary reason for this is the recent combination of horizontal drilling with hydrolic fracturing. This has spiked production in the Bakken range in North Dakota and has also made a hundred year supply of natural gas economically viable in the Marcellus Shale region of NY, PA, OH, WV and KY. We also have huge reserves of oil shale in CO and other Rocky Mountain states. In addition to this, we have the world's largest coal reserves with over 200 years of reserves. In short, we have huge reserves of economically viable energy that would be a boon to our economy were it not for some environmental lobby groups and bureucrats who are more interested in blocking production than real science or our economic health.

[Mochilero]

02:20 AM on 08/16/2011

Uncontrolled growth is the philosophy of the cancer cell. To survive we need to use less and live more simply.

[Paros]

09:34 AM on 08/16/2011

Perhaps economic growth and consumerism are not mutally dependant.

[spinotter11]

07:28 PM on 08/16/2011

It sounds as if Mochilero advocates neither economic growth nor consumerism, but rather economic shrinkage and a simpler, healthier, more sustainable life for all. Certainly I do. But I have learned what a restless, grasping bunch of simians we are, so I do not have very high hopes in this regard.

[teachone]

01:12 AM on 08/16/2011

President Obama has known and been saying most of this for sometime, but Simon needs to pay attention to what the President said today, as it was the TRUE issue which was that, this country has a POLITICS PROBLEM!!!! The filthy wealthy, which includes, republicans/teapartiers/big business/wallstreet have sent their little lobbyists to Washington to buy off every person in the government that has any power or influence and twist the laws of this country in favor of themselves only...THAT IS THE PROBLEM!! I, many other americans and the President have been saying this for well over a year, much of this started about the time John Boehner took office, but has been going on consistently for a decade, the corruption, lobbying and misuse of power and influence MUST STOP!!!! When money can be used to bypass the laws, there will ALWAYS be trouble!!!!! Laws are made for a reason...to bring about FAIRNESS, HONESTY, ETHICAL, HUMANITARIAN, MORAL CONDUCT!!! Those who have been making their political purchases, have NONE of these character traits and are the VERY REASON we NEED such laws!!!!!

[Vinnster]

03:14 AM on 08/16/2011

Might want to get your facts straight and drop the naivety...You left out the BIGGEST lobbyist of them all, Progressive Big Labor

"The SEIU spent the most money, $42 million, and the AFSCME spent the second most, nearly $20 million. Meanwhile, the Chamber of Commerce spent about $16.5 million. Overall, spending by non-party liberal groups outpaced non-party conservative groups by $159 million to $120 million, respectively.

See you have been played and snookered into believing the right is your problem, but the reality is the left lobbyists are just as bad, steal just as much, and screw the common man. And you fail to note in your screed Wall Street and Bankers paid the Senate Democrats very well for favorable treatment

Your enemy is a corrupt government. Obama is very much a part of that corruption.Quit drinking the Progressive Koolaid and start thinking for yourself.

[Ice4you]

05:31 PM on 08/16/2011

Really you have a problem with working people having a voice in Washington. If you really think they have the power you are a teaparty member. Republicans are the problem and yest they are all corrupt but democrats are not obstructing everyhing that would help this nation.

[Michael GE]

04:23 AM on 08/16/2011

As a foreigner "watching" US politics unfolding especially over the last three years, I am more specific: One can consider the "two-party-system"/"first-past-post" or the impact minorities like the TP have in electing ppl for parliament/ office. But IMO at the heart of the matter is the filibuster rule which allows one person alone to stop all "normal" majorities ("60 is the new 50"). That is ridiculously to watch.
There is plenty of reason to have checks-and-balances, to prevent that simple majorities can upturn constitutional and political structures. But investing more or less single persons to be the judge about that is equally wrong.

[OneTop]

01:00 AM on 08/16/2011

We don't have a Growth problem.

What we have is a Political problem.

Not one person of the Political ruling class, has lifted a finger to address economic growth, therefore, it is not a problem. The largest problem facing the nation in the last 6 months was the debt ceiling. You know that administrative relic from WW1 that wasn't an issue for almost a century.

So any talk about "growth or unemployment problems", in the US, matters not outside of academia.

Still not a believer?

It took no time to create TARP, just a piece of paper, no time to give billions in subsidies to Oil & Gas companies, no time to extend tax cuts to the richest of the rich or bomb Libya.

That's what happens when the Political ruling class come across a problem. Both parties and the administration of the day hold hands in unison and get it done!

[jcaunter]

02:33 AM on 08/16/2011

We don't need "growth", we need sustainability. The failure of almost every economist and politician to see that simple and fundamental fact is the reason why the human race is going to be experiencing so much horror in the years and decades ahead.

[spinotter11]

07:34 PM on 08/16/2011

Beautiful comment - already fanned. But it would never suit our political and economic leaders to admit this truth, so I'm afraid that the horrible times are approaching, and not just for the human race, but for all life on this poor planet.

[innerpuppie]

11:25 PM on 08/15/2011

Brilliant article. Ya think Obama read it? Probably not.

[grouseless54]

10:58 PM on 08/15/2011

I read the blog article by Daron Acemoglu (referenced in Mr. Johnson's article) and one solution proposed to boost innovation is the continued use of H1B visas to attract creative foreigners. I can't say I am informed enough to argue for or against that proposal, but I would like to see a discussion about why this nation of 311,000,000 some odd souls cannot/will not find all the creativity it needs within its own population. One answer may be that
creative/innovators are a testy lot, as we produce them, and that many of these people have been cut out of the process because they threaten corporate management and structure. I bet we have the right people floating around - it's the gits at corporate that don't have the sense to invest in the right employees.

[rolor]

06:27 AM on 08/16/2011

Individual creativity and initiative is killed on the corporate parking lot and off it, is a terrain rife with quicksand pummeled by storms and patrolled by vultures where survival alone is a monumental challenge.

[grouseless54]

09:40 AM on 08/16/2011

Dear rolor:
And I though I was jaundiced. Nice riff - Fanned.

[SouthernRaised]

10:54 PM on 08/15/2011

We all can only hope that this book is read and taken seriously by every politician and millions of average American citizens. Admittedly though, it's hard to be encouraged when we we continuously have an obnoxiously ignorant portion of our population pulling the political strings. You only have to read some of the comments here and on the Bloomberg site to realize that there are brainwashed fools with little if any economic educational training hurling personal attacks at a former IMF chief economist.