The argument against Paullrey’s assertion has nothing to do with the wall street journal. He is a quack and that is all.The argument against his philosophy is that he is clueless.

What if the gobal warming argument was subjectted to the same scrutiny.

The winter of economic thougt continues.

In its 1974 annual report, the Minneapolis Fed noted:

…we are going to have to accept as fact that we cannot continue to expand consumption (i.e., living standards) as rapidly in the next few years as we have during the past decade. It is important to understand that this conclusion rests basically on the argument that credit-financed expansion, beyond a certain point, leads to instability rather than further expansion. The conclusion does not rest on the dubious premise that the world is running out of resources. …

In the past, widespread increases in standards of living in developed countries eased social tensions that otherwise might have been associated with disparities of income and wealth, both within and between countries. If long-nourished expectations of “a better life” (i.e., more goods, services, leisure, etc.) are now going to be frustrated, or at least postponed, as seems inevitable, then there is going to have to be an equitable sharing of the burden of this adjustment.
(1974 Annual Report Essay, The Limping Giant..)

‘equitable sharing’ and reality-for-most; what a divergence.

Yes, at least initially, wage rigidity may have contributed, but implying this to have been primary is, I believe, a misunderstanding of that decade’s conjuncture which was also one of crises induced pressure on working class and wages. Capitalism’s postwar golden age could not be perpetuated through the use of political Keynesianism anymore than neo-liberal ‘free market’ policies have brought that age’s restoration.

A month or two ago, Andrew Samwick posted what I believe he called the saddest chart he had ever seen, real weekly and hourly wages, 1964-2008 in 2008 dollars:
http://picasaweb.google.com/lh/viewPhoto?uname=asamwick&aid=5195760215722236945&iid=5200404157632314674

1) As to “re-capitalizing” America’s financial sector: I thought part of the problem had been the “over-capitalization” of the finance sector to begin with; that with $72 trillion of capital planet wide looking for investment opportunties, too much of it had come to America, and so Americans on Wall Street concocted what became, eventually, the NINO mortgage industry to find a place to park all that capital. So maybe getting capital per se isn’t the problem; it’s the line of people standing in line claiming future material benefits in exchange for paper that entitles one to claim material benefits in the now for use to make more of those material benefits in the future….

2. I get the point re: cutting consumption. What I don’t get is the abstraction of it. The matter does become, I fear, somewhat personal, as the fact is: a minority of us have lived much much much better than the majority of us, and that standard of living often is correlated to being rightly connected to the very class of people who helped put us in the predicament we’re in. I very much appreciate the truth that as a general rule, the typical American lives better than billions, literally billions, of people on Planet Earth. It is also true that the typical American has little to say about how or why that is. So when I am told that we need to cut our consumption, I have to consider what, in particular that means: I already have no intention of replacing either vehicle, both American made, the newest of which is already six years old; the last major electronic appliance purchase is the computer I am using right now, and it is going on 5 years old. (It goes without saying, but I’ll say it, that we didn’t chose to move industrial production overseas, we don’t control capital like that.) The temperature is in the 90’s, the humidity is high, but we still haven’t kicked on the central air (we sometimes make it till the end of June.) We’ve even been serious gardeners long before Michael Pollard started to make it fashionable. One of us has been on an airplane in the last 20 years… and I could go on. So whose consumption, exactly, is to be cut, and what are they going to have to give up? (I wanted increases in CAFE standards a decade ago, but what do I care for a “free market”? Personally, I won’t believe that the price of gas is too high for a majority of us until I see the majority of drivers around me adhering to the speed limit. Most people here in the middle of flyover country seem to treat the posted limit as a suggestion…)

3. No, we are not isolated. The capitalist class is an international class, and the capitalist does what it can for its benefit without regard to national boundaries.

According to NATO, Finland had a steeper fall because its contraction was caused by economic overheating, depressed foreign markets, and the dismantling of the barter system between Finland and the former Soviet Union under which Soviet oil and gas had been exchanged for Finnish manufactured goods. Thus its fall in housing prices was more a consequence than a cause of its recession. Sweden similarly suffered from disruption of its trade relationship with the former USSR

http://www.TakeBackTheFed.com

Mark
http://www.siv0.com

Some possibilities:

Having a recession.

Putting in a VAT on all goods except necessities like food and simple clothing.

Taxing oil a lot.

Eliminate policies that discourage saving.

Higher rather than lower rates? What’s the “unintended consequence” in terms of reduced demand for domestic production?

How do you achieve a sensible shift without creating further havoc when the world operates under such a distorted currency regime? And who’s responsible for that currency regime? Not the US. Not Bernanke.

A recent speech by John Taylor also supports some of your concerns (pages 9-15). I was surprised that the speech did not get more press as Taylor is a prominent economist and the speech disagrees with the Fed’s mantra. Basically, Taylor is saying the Fed ignored the impact of inflation on other countries with less-than-flexible exchange rates. He also blames commodity prices on Fed policy.

http://www.stanford.edu/~johntayl/Mayekawa%20Lecture%20-%20Taylor.pdf