I feel like we've reached a point in our conversation here where those of you who believe in centralized economic stimulus are not reacting to me as if I was some kind of dogmatic supply side advocate you need to shout down. That might be because I've moderated/clarified my tone or it might be that we've lost the shouters. Either way, as Republicans prepare to again embrace stimulus spending -- which they always do when their party controls the presidency -- we're confronted with a bi-partisan consensus that the only infrastructure reform we really need involves ways to get more money.
Last week in our list of favorite podcasts I said that one of my favorites is the McAlvany Weekly Commentary. This year they had an incredible interview with Richard Duncan, a modern Keynesian economist and investment portfolio manager who -- without a lot of hedging and nuance -- spelled out exactly where we are in the bubble economy and made a passionate case for much higher levels of government spending as a way to boost growth. I think it was eye-opening for those of you who think of yourselves as economically progressive and are inclined to embrace a more activist government role in managing the economy.
These two posts react to the Duncan interview and attempt to map out an alternative to the one-dimensional -- higher/more/good or lower/less/bad -- paradigm.
If the global economy is like a hot air balloon, we're only given the option to continually go higher -- despite the risk -- or cut all the air and crash. Those options aren't good enough.
"There are credible scientists making serious plans to offset global warming by spraying sulfuric acid into the upper atmosphere. The idea is that the sulfur combines with water vapor to form a fine particulate that will remain airborne and deflect some of the sun's rays, thus offsetting the heating effect. People advocating for this believe they can fine tune the climate like a thermostat.
"Of course, this is absurd, and many of you intuitively grasp that. The climate is a complex, adaptive system involving far more than simply solar rays. It's the height of arrogance -- or foolishness -- to believe we can fine tune such a complex system. Even if we managed to for a while, the compounding impacts over time are totally unpredictable. I'm guessing that most people reading this article would believe it better to stop impacting the climate today -- to dramatically reduce our CO2 emissions -- than to try and mitigate the effects after the fact..." Read the rest of the article.
Duncan's approach -- and the bipartisan approach of others who would shower money on our current system -- can only make our fragility problem worse. This thinking scares me.
"If we buy Richard Duncan's contention in my previous article that the American economy is so far up in balloon territory that we have no choice but to borrow and print trillions more dollars to keep it all going or face a disastrous -- potentially civilization ending -- reset of conditions, then what do we do?
"I do agree with this contention, mind you, and my response is to build strong towns. Our cities, towns and neighborhoods are financially fragile and we need to get to work shoring them up. Fine-grained investments. Get small and get agile. Shift our investments from, in the words of Czech economist Tomas Sedlacek, chasing growth to building stability. Lots of resilient local shops. Lots of adaptable building types. Different, low-cost transportation options. Less dependence on cheap energy. Local food production. That kind of thing. That is not the response that Duncan has, however..." Read the rest of the article.