We need to look beyond the news media for a view on what’s happening. With the exception of Gittings writing for the SMH, I haven’t read or heard much that could be considered knowledgeable. I went back to a February, 2011 podcast by Richard  Koo at the Lowy Institute on ‘balance sheet recession’[1]. It makes sense – corporations are deleveraging; consumers are saving; governments are attempting to cut their deficits. The outcome – increased unemployment; falling GDP and the running down the public infrastructure.

http://lowyinstitute.richmedia-server.com/sound/The_long_haul_towards_economic_recovery.mp3

His remedy – governments borrow at the current low interest rates and build infrastructure, which stimulates demand and employment. And they need to continue borrowing and spending until the private sector resumes borrowing and investing. The only member of the G20 doing this is China (substitute ‘private sector’ with ‘regional governments’).

The current Australian government understands this. Bernanke at the Federal Reserve now understands this. Obama understands this. But the fiscal conservatives do not – they are captives of the ‘balanced budget’. The NBN is one example — $34  billion spent on a new communications infrastructure delivering fibre to the dwelling, or tired WiFi where much-needed spectrum is tied up with analogue free-to-air TV. I read of pensioners being cut off from their telly rather than the economic benefits of broadband internet. And then when the Federal government brings in digital set-top-box assistance, I read of potential rorts. I read of skills shortages, so where are the training and skilling programmes for the long-term development of the work force? I read of carping, populist politicians demanding fiscal conservatism rather than displaying economic leadership. ‘Tis depressing.

Today’s podcast

Peter Day’s world of Business

At a time of grave crisis, some of the world’s top Nobel Prize winning economists have been meeting for a conference ….

http://downloads.bbc.co.uk/podcasts/radio/worldbiz/worldbiz_20110902-1745a.mp3

Joseph Steiglitz

Decision not to regulate the financial institutions – in the aftermath of the Great Depression, regulation gave us 40 years of stability. In the 1980s Reagan and Thatcher deregulated. There is now an overemphasis on the financial sector making short-term profits.

William Sharp

How can one prophesy stability when the US stock market loses $3 billion one day and gains $4 billion the next.

Robert Mundell

A necessary condition for the EU monetary union is a balanced budget but how can you have this with 13 governments and the one currency when growth rates vary.

Peter Diamond

The problem in US and UK is getting the economy going in the short run and to get the debt down in the long run. Policies that have staying power in the long run because they can be a vehicle for investments using idle resources. A mass of infrastructure is needed.

Edwin Phelps

There is no way out for the US other than a tax increase across the board. We have to achieve in social life between profligacy and being mean – more saving is required. There is a weakening of the financial sector – bad balance sheets. Consumers are timid because they are broke. There will be a decade of very slow growth in both the US and Europe.

Martin Wolfe

We have a number of countries that can’t afford the debt they have. Japan can not depend on exports. Exports will drop away because there is no one we can export too. The most likely is a default by a big European country. We are in a very fragile underlying world economy. Private businesses have become powerful because of their possibility of failure.

Eric Maskin

The problem with the US political system is that it runs on large donations. Politicians have difficulty in avoiding the pressures of Wall Street. Everything is short term. We need gradually to reduce spending and increase taxes.

A contributor

Everyone is sucked into the boom and then the bust. People panic. The media has an influence – 30 years ago it took time to adjust, now it’s instantaneous

This last comment takes me back to behavioural economics; an attempt to understand the bubbles and busts. These snippets really add little but that’s the nature of the media. To paraphrase Koo, we haven’t learned.