In an interesting piece, Roubini points to structural problems in the world economy:
There is a huge excess capacity for the production
of manufactured goods in the global economy, as the massive, and
excessive, capital expenditure in China and Asia (Chinese real
investment is now close to 50% of gross domestic product) has created
an excess supply of goods that will remain unsold as global aggregate
demand falls.
Odd company or not, note that to the extent that Roubini is correct that past credit excesses have resulted in over-capacity (ala ABC) then our present problems go considerably beyond credit supply. Tyler is more optimistic than me on these matters.
Sigh. I have to remind you AGAIN that libertarianism is dead and ABCT is completely discredited. Am I going to have to remind you every time new evidence supporting them comes in?
I wonder if this is the beginnings of the assimilation of ABCT into the mainstream without the mainstream having to ever admit it. We out here in the hinterland are even hearing some mainstream critiques of FDR. Revisionism for The Dear Leader ain’t no joke.
What’s remarkable about Roubini is that it’s always the same “boost aggregate demand” line. He called the crisis, but that doesn’t necessarily qualify him for the fix. I would think that every time an economist or journalist says something like “the biggest government intervention since the Great Depression” that would give them at least a moments pause. Oh well, maybe next downturn.
It would seem that I have enough LCD TVs, and trying to boost my aggregate demand is throwing good money after bad, but Indians might be able to use more computer monitors. Better yet, cut those LCDs into 8ths and make a better Kindle. Pre-load that joker with Austro-libertarian tomes, Ben Graham, Warren Buffett, Peter Drucker, Naomi Klein…just kidding. And, maybe we can write off all the malinvestment as capitalism training for the third world- kind of a countercyclical make-work project.
Well, the nice thing is that those factories are sunk costs. Is it possible that they can lower prices and sell their wares to new demand markets, e.g. poor Africans, etc.? And, the newly minted Chinese factory workers can always go back and be farmers, right? At least a lot easier than I could go be a farmer. I can’t even keep my lawn green without painting it.
Excess supply of goods? I can’t find a pair of decent black shoes of my size, which is 44, thus no anomaly! I have hard times when buying a toy for my six years old son, because there are very few quality toys in the market. Toy shops are full of poor quality Chinese crap, but I wouldn’t call it oversupply of goods. And that’s not only toys.
@Pavel: That’s not disproving excess production. It’s a problem of spatial matching of demand and supply.
Yeah, I realize Austrians can be…dogmatic…online, but c’mon folks, this was a textbook Austrian business cycle theory. I’m not saying all you need to do is read Hayek and that’s it, but really, this is textbook. Greenspan lowers rates to a ridiculous 1% (the lowest in inflation-adjusted levels since 1979 btw), we get a boom in consumption and high-end durable goods (housing), and–assuming Roubini is right–there is massive overinvestment in manufacturing capacity. The Fed chickens out because inflation starts rising, it raises rates back up, and then everything goes to h*ll.
I realize there are other factors involved, but I think that is the main driver in all this.
@Pavel: I hear ya. The solution is simple: buy custom-made bespoke shoes online from Argentina. You can get a great handmade pair starting at about US$149.00/€109.37 just by sending good outlines and measurements of your feet. In 6-8 weeks, voila! Many many people I know do this now.
@streetwalker: Got a url for the shoe place?
Can someone explain to this young econ student why Roubini needs to make up a new term for a deflationary recession? I thought recessions with inflation were the anomaly that required funny terms like stagflation and deflationary recessions were what standard theory predicted?
Structural problems?
We don’t have enough oil / cheap, clean energy. (That situation is ‘quasi-structural’).
The auto industry, living on borrowed time now for almost a decade, has to restructure, some more, even as they face radical changes in technology (that should be reshaping the industry, instead of being weighed down by it).
Something is wrong with natural gas prices in the U.S., to the point it looks “structural”.
People seem to be talked out on whether we have structural problems with the trade accounts.
Because of the electioneering of “no new taxes” and the Grover-Norquist next-generation tax-overhang it has created, we probably have something close to a structural fiscal problem. Were the IMF bailing us out, instead of our grandkids, we’d probably have to cut our massive, low/no productivity investment: the military. (Someone has to say it).
The rest looks … “over argued”. Yes, there may be some deflation. ‘Awash in supply’ looks like as much of a non-thesis as the prior ‘awash in liquidity’ (that was supposed to generate huge amounts of inflation, that never came).
> China
Yeah, but the steel is radioactive, the food has melamine and crap in it, and don’t even ask about the counterfeit stuff.
What China needs is a capacity to make _good_s. You know, the Union Made with Pride kind where the workers actually sign their work and spit in management’s eye when asked to make shoddy stuff.
Come to think of it, the USA could do with more of that too.
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