Capital Commerce

Is America Really a Third-World Country?

April 3, 2009 RSS Feed Print

Comment (5)
Tweet

In the WaPo, Simon Johnson and James Kwak make just that case:

In a normal advanced economy, creating hundreds of billions of dollars in new money would not foster runaway inflation. As long as the economy is underperforming -- for example, with high unemployment -- stimulating the economy will only cause that "slack" to be taken up, the theory goes. Only when unemployment is low again can workers demand higher wages, forcing companies to raise prices.

But is the United States really a normal advanced economy anymore? We seem to have taken on some features of so-called emerging markets, including a bloated (and contracting) financial sector, overly indebted consumers, and firms that are trying hard to save cash by investing less. In emerging markets there is no meaningful idea of "slack;" there can be high inflation even when the economy is contracting or when growth is considerably lower than in the recent past.

If the United States is indeed behaving more like an emerging market, inflation is far easier to manufacture. People quickly become dubious of the value of money and shift into goods and foreign currencies more readily. Large budget deficits also directly raise inflation expectations. This would help Bernanke avoid deflation, but there is a great danger that unstable inflation expectations will become self-fulfilling. We do not want to become more like Argentina in 2001-2002 or Russia in 1998, when currencies collapsed and inflation soared.

Me: Easy to manufacture, tough to eliminate -- especially without causing a double-dip recession.

« Previous Post Next Post »

Reader Comments Read all comments (5)

Add Your Thoughts Comment Name State Email

Please enter the two words below into the text field underneath the image.

Your comment will be posted immediately, unless it is spam or contains profanity. For more information, please see our Comments FAQ.

dude have you ever spun around america? or seen the less fortunate?
have you been to washington dc at all? that is one of the most poorest area's of the east coast and what about them children who can't even have three square meals a day
during the late 70's early 80's much of boston and brookline was quite in bad shape and most were either poor or living in a very low form of lifestyles
what about the kids from the south who live in trailer parks? or those even in west roxbury down on vfw parkway which one of boston's last trailer parks?
or those in northern new hampshire namely berliin new hampshire
still mostly undeveloped
quit your bitching and lying

i am the hefei king of MA 6:59AM May 20, 2010

infact
all countries are 1 way or another a 3rd world state
A. all countries are still developing including america
in america the poor are poorer than those in china
it's because in china . the government helps the people more often rather than the american government thus explaining why even poor people can also be smoking 555 cigs which would go for 30 50 rmb /4.41- 7 dollars a pack
and on average the chinese wold spend atleast 30 rmb for cigs many even as much as 22- 30 dollars just for 1 pack of cigs,.
and also that they spend alot of money on meals esp. when go to a restaurant
but their homes may look shallow yet there are more bmw's om china than there are in america and they cost twice as much as an american bmw
so , who are the rich and who are the poor
all you americans think too much of the 80's lifestyle in american history
I , too am an american but had moved to china 4 years ago

i am the hefei king of MA 6:52AM May 20, 2010

It's a vicious cycle when you get down to it. People are greedy and lazy deep-down. even if the recession ends, people will remain the same and what causes recessions? People. As long as people keep overspending, overusing their credit cards and overusing our resources, nothing will ever improve. In order for a change to occur, WE must change. People must change.

Christian Toomey of CA 11:27PM May 12, 2010