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The following is a segment of a conversation between three noted mainstream economists sponsored by EPI, CBPP, Demos and the Century Foundation. It took place October 4, 2010.
Presentation: Transcript at http://www.cbpp.org/files/10-6-10bud-panel-02.pdf
Jackie Calmes, New York Times
Jan Hatzius, Goldman Sachs
Paul Krugman, New York Times
Martin Feldstein, Harvard
We offer it for context. As listeners of Demand Side know, our opinion is that the consumer is dead and any attempt to restart the old economy is destined for failure. The capacity utilization problem is not going to be rectified by restarting the old consumer industries. The true capacity utilization problem is labor capacity. That can be addressed most effectively by addressing it directly. The scale of World War II is the right scale. As James K. Galbraith has pointed out elsewhere, it can be spread out over more years. Perhaps a war on climate change?
Other notes. Certainly Depression is the most appropriate term for the long-term high unemployment stagnation these economists describe. Fixing the mortgage problem is now a matter of making the financial sector take write-downs. In itself, it would trigger the need for another bailout or resolution of insolvent banks. We agree that in the political climate we are entering, this is becoming less likely. Finally, the panic which leads to the remedy of throwing everything in huge amounts at the problem, a panic Krugman most clearly expresses, is not the right way. A planned, targeted and massive action is what is needed.
Shumpeter's creative destruction is now called for. The destruction of the financial sector. Its replacement by planned, productive investments guaranteed by the government.