tag:blogger.com,1999:blog-1331441403058020963.post501044777918324970..comments2024-03-28T06:49:24.930-04:00Comments on International Political Economy at the University of North Carolina: The World in Decession, Analytical VersionThomas Oatleyhttp://www.blogger.com/profile/14092437150746625670noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-1331441403058020963.post-33047207257370207402010-06-15T07:25:57.867-04:002010-06-15T07:25:57.867-04:00Dear Mr.Oatley,
Kudos for making the analysis in ...Dear Mr.Oatley,<br /><br />Kudos for making the analysis in a simple but crystal clear way. With respect to the three broad issues discussed, I fully agree with the first one ("We shouldn't endorse Krugman's policy recommendation") and partly agree with the third one ("reasons underlying German behavior"). But I'm afraid I don't buy the second point.<br /><br />Essentially, if I understand you correctly, you are making an argument based on the following assumptions. First, the United States should resume playing "the consumer of the last resort." Second, US consumption would help Europe's economic recovery and allay some of their fiscal concerns. Third, this might stimulate economic activity in America. Fourth, playing the consumer of the last resort has only marginal costs.<br /><br />Granted, the argument is intriguing. But the more I think about it, the less convinced I'm about its feasibility.<br /><br />To begin with, it would be a huge understatement to say that the United States is reluctant to resume playing the consumer of the last resort. Washington is furious that China and the Europeans aren't doing their bit to shoulder the burden of global rebalancing. Indeed, China refuses to revalue the renminbi and the Europeans - led by Germany - have embarked on fiscal austerity in the midst of high unemployment and anemic growth prospects. Understandably, the United States is reluctant to bear the brunt of correcting global imbalances alone.<br /><br />Furthermore, even if we assume that Americans tacitly agree to play the consumer of the last resort, I doubt that the Europeans would gain significantly. China and other Asian exporters are more likely to get a bigger chunk of the pie.<br /><br />Also, even if we assume that the Europeans might draw some benefit from US consumption, distributive concerns would emerge. Ironically, only Europe's surplus countries (e.g. Germany, Netherland, and so on) benefit from the current depreciation of the euro. The deficit countries (e.g. the PIGS), instead, don't gain much from the lower value of the common currency, because most of their trade is intra-European. All this suggests that higher US consumption is highly unlikely to help Europe's deficit countries grow out of their alarming fiscal predicament.<br /><br />The assumption that the United States playing the consumer of the last resort would help solving both Europe's and its own problems is a beguiling idea, but in fact it's potentially only a delusion.<br /><br />Even more importantly, asking the Americans to resume their borrowing and consumption binge is deeply problematic. Indeed, I see it as the ultimate form of moral hazard. The Chinese and the Europeans would infer the lesson that they don't have to get their house in order so long as the Americans continue with their proligate ways. The US consumer of the last resort is to China and Europe what the government safety net is for big banks. As the severe financial and economic crisis has painfully showed, this incentive system is patently flawed and hardly sustainable.<br /><br />In sum, resuming the role of the consumer of the last resort would only exacerbate US problems, and this in turn would threaten to derail the timid economic recovery. The search for a better paradigm for global economic growth continues.Morgenthauhttps://www.blogger.com/profile/02151518625276541411noreply@blogger.comtag:blogger.com,1999:blog-1331441403058020963.post-19052087260287095972010-06-15T07:15:56.519-04:002010-06-15T07:15:56.519-04:00This comment has been removed by the author.Morgenthauhttps://www.blogger.com/profile/02151518625276541411noreply@blogger.comtag:blogger.com,1999:blog-1331441403058020963.post-38767592870148878852010-06-12T13:32:38.723-04:002010-06-12T13:32:38.723-04:00Thanks Anon; re point 3, I actually intended that...Thanks Anon; re point 3, I actually intended that phrase as a slap at rather than a defense of Will. Perhaps I should have written "should have" than would have. Sorry that it lacked clarity. <br /><br />As for defending Will, that wasn't my goal. Apologies again for lack of clarity. My goal is to defend the blog as a place I would like people to visit. I leave it to Will to defend his thoughts. <br /><br />As for mentoring, well, all I can say is, sometimes it occurs in public.Thomas Oatleyhttps://www.blogger.com/profile/14092437150746625670noreply@blogger.comtag:blogger.com,1999:blog-1331441403058020963.post-13859191867157601242010-06-12T12:59:36.329-04:002010-06-12T12:59:36.329-04:00prof. oatley:
your tone is much better than Will...prof. oatley: <br /><br />your tone is much better than Will's, and your post is much more enlightening than his. In my eyes, however, this post hurts you in a number of ways:<br /><br />1.) sounds like you are his mentor, which means that you haven't done a good job socializing him about proper blogosphere etiquette and what the academe is mostly about: publishing papers. Where are his publications?<br />2.) professors should let their grad students stand up for themselves. students don't grow when professors do their work for them. Let Will defend himself.<br />3.) it's disingenuous (and thus lacking in scientific standards) for you to claim that what you wrote is "what Will would have said" without giving us any evidence for why this would be the case. Looking at Will's previous posts, this claim seems highly implausible.Anonymousnoreply@blogger.com