And needless to say, we can’t all export ourselves out of a global slump. So, how does this end?

From the NY Times:

"The eschatology of lost decades

Martin Wolf channels Richard Koo, whose balance-sheet analysis of Japan’s lost decade does indeed provide one of the best road maps to the mess the world as a whole is now in. And Koo’s counterintuitive praise for Japan — while it had a bad decade, it did not have a depression — is a useful corrective to the constant claims that fiscal policy failed.

But here’s my question: does Japan’s experience offer any guidance on how a balance-sheet slump ends? Koo writes about the gradual rebuilding of private balance sheets, preparing the ground for recovery; and Japan did in fact have a fairly convincing bounce-back from 2003 to 2007.

But a closer look at that recovery is not encouraging. The chart above is a quick-and-dirty summary of the sources of Japanese growth from 2003 to 2007. It shows the change in real GDP, the change in real consumer spending, the change in real business investment, and the change in real net exports, all as percentages of 2003 GDP. What we see is nothing special happening to consumption, which grew more or less at its long-term trend growth rate, and only a modest investment boom. Exports were the driving force behind recovery.

And needless to say, we can’t all export ourselves out of a global slump.

So, how does this end?"

Me:

"By that chart, wouldn’t investment be worth a shot? Which is why I wanted targeted tax cuts for investment. Generous ones. I also wanted a sales tax cut, which would be phased out in the future, to keep consumption from falling off a cliff, not to encourage needless spending. That would help with C. I would also argue for Buiter’s Helicopter Money Proposal:

http://www.nber.org/~wbuiter/helijpe.pdf

This would be my QE. Finally, a more modest stimulus would have made sense, in order to encourage some optimism that we are investing for the future. Maybe $100 Billion Dollars. We should spend generously on social safety net help as well.

All these ideas follow from my reading of Fisher, since we’re attacking deflation and the fear and aversion to risk. What we cannot do, because of our circumstances, is spend as much as I or Shiller might like. There are too many negative possibilities in doing that.

Along with temporary nationalization of some banks, and some common sense from other countries as well, we might make some advances.

A subsidy to prop up home prices does not seem like a good idea. A better idea would be a general housing subsidy for a time, but that’s not going anywhere.

— Don the libertarian Democrat"