Willem Buiter: Mismanagement by the Officialdom Can Produce a Depression

To be fair, Willem Buiter’s latest post strives for a bit of gallows humor via its title, “YES WE CAN!! have a global depression if we really continue to work at it…,” before getting down to serious business, namely, that the powers that be risk missing the opportunity to salvage the global economy.

What makes Buiter worth reading, aside from his refreshing bluntness, is that he is largely but not entirely an orthodox economist. He accepts the notion, for instance, that Kenyesian stimulus would be a very good thing, but concludes, heretically, that a lot of the main economic actors can’t go very far down that path.

Aside from arguing that point (as he has previously) Buiter also warns against the dangers of growing protectionism. That is conventional but well expressed nevertheless.

It seems that a collective sour mood has developed, as the ugly reality reveals itself: the economic crisis is going to take quite a bit of time to resolve itself. Countries with overlevered, dud banks and overextended consumers are nearly certain to suffer a permanent hit to their standard of living. The highest profile incidents at Davos were either outbursts or harsh criticisms of the financial order once aggressively promoted by the US. But as telling were journalists’ comments about widespread anger (not just gloom), which does not bode well for cooperation.

The reason that the talk of protectionism now is unfortunate is that it is ill timed. The juncture for the US to have made noise about China’s currency peg was after the Asian crisis had clearly passed and China (which only took a glancing blow) had built up a buffer of FX reserves. Conceptually, an artificially low currency is no different than an across the board export subsidy. But being able to borrow cheaply had certain advantages to the US. Even though the Bush crowd was quite wiling to alienate most of the rest of the world on Iraq, it was craven in its dealings with China (and other countries running dollar pegs).

The entire post is worth reading, and includes a very good discussion of how the ECB is behind the eight ball (with useful legal and operational detail). Key sections:

There is little doubt that if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world. The response of the assembled non-US finance ministers in Davos made this clear. Retaliation from the EU countries and the rest of the world would follow swiftly. Because this disastrous US Congressional actions follows so closely on Treasury Secretary Geithner’s declaration that China is manipulating its currency, it is essential that the Obama administration draw a clear line in the sand. If anything like the Buy American clause inserted by the House survives in the bill president Obama gets on his desk, he must veto it. The questionable value of the fiscal stimulus is overwhelmed by the unquestionable domestic and global harm caused by the Buy American clause. If president Obama fails to veto a protectionism-laced bill, it will be clear that we have a wuss in the White House. If such is the case, God help us all….

Yves here, I am convinced Obama IS a wuss, and would be delighted to be proven wrong. Back to the post;

Financial protectionism is on the rise everywhere. This is partly the inevitable result of the belated discovery of the truth that cross-border banking must be severely restricted as long as regulation, supervision and tax-payer-financed bail-out support for banks is arranged at the national level. The post-crisis world will no longer have cross-border branch banking, with the foreign branches controlled by the parent, its depositors guaranteed by the parent, home country regulation and supervision and no independent capitalisation. Instead we will have just independently capitalised and financially ring-fenced subsidiaries (no Lehman UK last-minute raid by the failing parent on the local kitty), with host country regulation and supervision, deposit guarantees provided by the host country and with fiscal bail-out support provided by the host country Treasury or by no-one….

Effective fiscal stimuli involving increased government deficits can only be provided by governments with fiscal credibility, that is, governments that can cut taxes and increase public spending now and credibly commit themselves to future tax increases and public spending cuts of equal magnitude. The relentlessly procyclical behaviour of most fiscal authorities in Europe and North America during the past decade means that in the north Atlantic region, at the beginning of the crisis, only Germany and Spain had any significant fiscal credibility and spare capacity. As far as I can tell, the US and the UK have little if any.
In the emerging market universe, China and Brazil have some fiscal elbow room. Few other countries do.
This means that the contribution of fiscal policy to the recovery of global demand will (a) be limited and (b) have to be modulated according to national fiscal spare capacity. That means little if any fiscal stimulus in the USA and the UK and a large fiscal stimulus in Germany and China. Germany is being dragged, reluctantly, towards the Halls of Reason. The US and the UK seem intent on expansionary fiscal actions that are likely to more than exhaust their government’s credibility capital. These fiscal actions by the US and the UK will also re-invigorate the underlying global imbalances that provided some of the combustible material that caught fire on August 9, 2007.

It is refreshing to see an economist dispute the idea that we can return to status quo ante. But at the moment, no one in authority wants to hear that.

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  1. Jim in MN

    There is now little doubt that we are in the process of recreating the Great Slump phase as in the 1930s. Instead of bank runs we have a bankers’ strike. Same damage, different weapon. By the time we ‘rediscover’ the Reconstruction Finance Corporation solution–inserting public agents behind bank lending desks, with backup, and making sure loans go to small business–we will be another couple of years into it. Out of the slump and into the depression, that is. Truly a sad story worthy of the Greeks or of Shakespeare.

    The protectionism part, of course, goes hand in glove. Just like the bankers’ strike, it is a perfectly rational course for many of the actors. And just like the bankers’ strike, only committed and insightful leadership can combat it–and even then perhaps not win. Evidence so far is not hopeful. I can see the argument: “Just a little protectionism on our side, that’s all, just for a while.”

    Got lifeboats?

  2. Anonymous

    Krugman does not have the Pavlovian response to the ‘protectionist’ label as most economists, and I agree with his view:

    “Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes.

    The economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story.

    But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response.

    And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.

    And this in turn means that if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.

    Now ask, how would this change if each country adopted protectionist measures that “contained” the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy — and the world would get closer to full employment than it would have otherwise. Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced. And as the late James Tobin liked to say, it takes a lot of Harberger triangles to fill an Okun gap.

    Let’s be clear: this isn’t an argument for beggaring thy neighbor, it’s an argument that protectionism can make the world as a whole better off. It’s a second-best argument — coordinated policy is the first-best answer. But it needs to be taken seriously.

    What’s the counter-argument? Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics.

    The right argument, I think, is in terms of political economy. Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again.

    But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program.”


  3. Anonymous

    ” The US and the UK seem intent on expansionary fiscal actions that are likely to more than exhaust their government’s credibility capital. “

    The Chinese and Asians generally signal they will hold to their peg. That means the only way out for the USA is catastrophic devaluation through a loss of confidence in the dollar. Eventually we’ll inflate those debts away.

  4. Anonymous

    More topical is the European banking on crash alert according to Barron’s.

    Each Countries’ banks take turns weighing each other down.

    I watched some hearings with Gore (carbon credits) and another about the stimulus package (not sure who it stimulates). At this point, gridlock is the best that can be hoped for where nothing passes. To much going on behind the scenes already to just throw more money on the fire except maybe tax relief.

    Tomorrow’s US market action will be telling.

  5. Anonymous

    I resent the assertion that Obama is a wuss and think it is misinformed. He demonstrated many times in his campaign that he is a protectionist. Why expect a change of heart when a bill comes across the table?

  6. Jim in MN

    Well, ignoring the high minded Pavlov and theology taunts then…

    So the first best solution, coordinated stimulus, can’t work due to coordination failure, so the second best solution is supposed to depend on…coordination?

    Gimme a break. That’s not economics. That’s just illogical. The first slightly off-kilter response from another country will send the U-S-A into a fit of retaliation…and vice versa.

    If you can’t coordinate stimulus, you can’t coordinate protectionism.

    Case closed.

  7. GregG

    Global trade may turn out to be a rich-man’s game and something many countries will have to back out of (for a while). Employment is the key to everything, especially if we’re not prepared to deal with the insolvent banks.

  8. Anonymous

    You only ship job overseas to get cheaper goods for your population until you lose too many jobs to this process that the demand for said cheap goods falls below the minimum needed for this process to remain relevant.

    China has created a major imbalance, and the only fix is for China to stop tipping the balance in its favor.

    How can any of you not realize this yet?

    Currency manipulation IS protectionism!

  9. retread


    What you say makes no sense,

    Protectionism is tit for tat. How does that have anything to do with coordination? By your logic, what is going on between Israel and the Palestinians is “coordination”.

    You can object to Buiter, but say something that passes the reason test.

  10. Jim in MN


    I agree with Buiter. It’s the Krugman stuff posted in comment #2 that I am responding to.

    Krugman is arguing for protectionism because we can’t achieve his first best option (coordinated stimulus). My point is that Krugman is tacitly assuming that protectionist measures will not escalate in a retaliatory fashion but instead be polite and, well, coordinated. I don’t think that makes any sense.

    Buiter is right: Buy American is tantamount to cutting the elevator cables.

    Happy Groundhog Day!

  11. Anonymous

    “Yves here, I am convinced Obama IS a wuss, and would be delighted to be proven wrong. “

    I see that Harvard education didn’t go to waste. Ten points have been deducted from your degree. We really should withdraw people’s degrees if they demonstrate non-Ivy mannerisms. It’s possible the writer might hail from NJ.

  12. Anonymous

    GregG: Global trade may turn out to be a rich-man’s game and something many countries will have to back out of (for a while).

    No, global trade is a smart-man's game.

    If you buy expensive American steel, you save some steel making jobs, but get to build less stuff, which means fewer construction jobs.

    If you buy inexpensive Chinese steel, it's the other way around.

    Probably a net zero … except that the cost of the protectionism is that everyone on the outside is going to tell the USA: "(*#&$ you all; you can pay 20% more for iron ore, oil, or whatever you need from us, as well as sucking down 20% on whatever you try to sell".

    Given that the USA's core problem is the titanic load of debt, it seems to me that making it more expensive or difficult to buy and sell to reduce the problem is about the most flat out STUPID way to proceed. But maybe that’s because I’m not an economist?

  13. Anarchus

    At least this statement makes it appear that Yves is NOT a wuss: “Yves here, I am convinced Obama IS a wuss . . . . “

    Of course, we’ll soon find out for real whether Yves is a wuss or not, when we see how she handles the howling, arugula-throwing mob that shows up on her front stoop to protest her unfair criticism of The One.

  14. Steve

    The more serious protectionist threat to Europe is that US financials will be forced to curtail commercial lending abroad in favor of domestic lending.

    I don’t see how Krugman can have it both ways: massive deficit spending and protectionism. Unless he has some way for the U.S. to finance its deficits that doesn’t involve China and Japan…

  15. Yves Smith


    I was remiss in not providing the link to the longer-form post Buiter made on this topic, Am putting it in the post, and here.

    Buiter’s point is that even if stimulus is narrowly successful, it will backfire in the intermediate term. In his view, the US is pretty close to the end of its rope, in terms of relying on the rest of the world for financing. He sees it as a no-brainer that a massive fiscal deficits will, relatively soon, (he estimates 2 to 5 years) lead to a collapse in prices of dollar denominated assets.

  16. Jojo

    Good stimulus related article here, I think. Are you a cyclist or structuralist?
    Robert Reich
    Sunday, February 01, 2009
    The Real Fight Starts After the Stimulus is Enacted

    The real stimulus debate hasn’t even started yet. Congress will pass President Obama’s stimulus package in the next two weeks, more or less as he wants it. The House has already done its part, and the Senate appears likely to follow suit. But when the economy starts to turn up again, perhaps as early as next year, the president will have the real tough decisions to make. He’ll have to choose which spending will continue — or whether any of it will continue at all.

    Sixteen years ago, Bill Clinton came to Washington with his own ambitious plans to reverse widening inequality, rebuild the nation’s crumbling infrastructure, create an efficient and affordable health-care system and address the growing environmental crisis. But because of raging budget deficits and a towering national debt, he was unable to accomplish most of this. As his secretary of labor, I shared his frustration. Alan Greenspan, then Federal Reserve chairman, and most of Wall Street warned that the nation couldn’t afford the risk of runaway inflation.

    Some aspects of Obama’s stimulus package look eerily familiar to me, although the price tag is far higher than Clinton ever dared imagine. Yet today, economic advisers across the political spectrum support Obama’s plan. A few weeks ago, Martin Feldstein, Ronald Reagan’s chief economist, told Congress that the stimulus should be $800 billion. (Although he apparently has quibbles with exactly how that sum will be spent, he’s not taking issue with the total amount.)

    The biggest difference between Clinton’s original agenda and the public investments Obama is proposing is that Clinton came to office as the U.S. economy was emerging from a recession; Obama is facing the worst downturn since the Great Depression. Even fiscal conservatives concede that when consumers stop buying and businesses stop investing, as they are now, the government must step in as the buyer and lender of last resort.

    But the moment the economy appears to be on the mend, conservatives such as Feldstein will want the government to cut spending. In their view, this is the only way to get the economy fully back on track. But others believe that it is precisely the track we were on that got us into this mess in the first place.

    Those who support the stimulus as a desperate measure to arrest the downward plunge in the business cycle might be called cyclists. Others, including me, see the stimulus as the first step toward addressing deep structural flaws in the economy. We are the structuralists. These two camps are united behind the current stimulus, but may not be for long. Cyclists blame the current crisis on a speculative bubble that threw the economy’s self-regulating mechanisms out of whack. They say that we can avoid future downturns if the Fed pops bubbles earlier by raising interest rates when speculation heats up.


  17. Anonymous

    Anonymous 11:13 PM said:

    I resent the assertion that Obama is a wuss and think it is misinformed. He demonstrated many times in his campaign that he is a protectionist. Why expect a change of heart when a bill comes across the table?


    What Obama says and does are often quite different – compare the tut-tuting over outsized bonuses or new corporate jets to his actively working to pass TARP, both times. Which costs the US taxpayers more, and is therefore more important?

    Just like Barney Frank, Obama understands the use of left cover quite well. Campaign promises got him elected but are likely to disappoint those who elected him (including myself.)

    If I have any hope it's that when the inevitable pained outcry comes – the US equivalent of a general strike – it's that Obama will have the intelligence to actually listen to it. Bush & Cheney would probably have just seen it as an opportunity to roll out their long-awaited and heavily legislated martial law and COG plan (Continuity of Government).

  18. FairEconomist

    Buiter is being a drama queen about protectionism. In the Great Depression, the slump was comparatively mild in current account deficit countries which followed protectionist policies. A trade war for heavy-deficit countries mostly drives up the cost of imported goods – lowering the standard of living, but in return pushing up employment via the need for substitutes. In a depression people experience this as a good thing. We’ll have to buy fewer flatscreens, but as long as everybody has jobs, food, and healthcare we’ll be fine.

    It’s East Asia that will get clobbered by a trade war. Directly and indirectly, their economies often are mostly driven by exports, to a far greater extent than the US was in the 30’s. A trade war really will be a Greater Depression for them. But not for us.

  19. FairEconomist

    Politically Obama will have no choice but to sign a stimulus bill with Buy American provisions but otherwise basically what he asked for. Buy American is popular and will be seen as a minor issue even by many opposed to it. If Obama vetoes his own bill addressing a critical and immediate threat of depression over a (to the public) minor issue with broad support in Congress – well, he may as well deliver his “I will not seek, and I will not accept the nomination of my party” speech right then and get it over with.

  20. Gerardo

    Yves – regarding your intutition that “Obama is a wuss” — Obama was quoted and printed during the pre election bailout deliberations as saying to his “elite economic team of advisors” — “TELL ME WHAT TO DO”. History tells us that great events and moments expose a persons character – the events do not form a persons character.

  21. jm

    The mercantilist exchange rate manipulation the Asian nations, especially Japan and China, have been engaging in for years is quintessentially protectionist. It functions not only as an export subsidy, but also as an import tariff of the same percent.

    As you yourself note, the Bush administration has been craven in its acquiescence to this (the Clinton administration with the industry-destroying Rubin strong dollar policy was just as bad). For all practical purposes, the US unilaterally disarmed itself in a trade war (because this benefited Wall Street and global-corporation top management).

    I don’t agree that Obama will be showing himself a wuss if he doesn’t veto measures that finally begin to fight back against this — rather the opposite, he’ll be showing himself as having the guts to fight for the working people.

  22. Anders

    Please correct mismangement to mismanagement in the title.

    I do hope we’ll see some good management out of Team Obama, but I think that Obama is far more interested in (and quite possibly better at) doing politics than he is commonly seen as.

    There is, of course, the old adage about fiddling while Rome burns – but remember another old saying:
    “Better to rule in Hell than serve in Heaven.”

    NOTE: Obama is not for everyone, but he’s certainly not the antichrist either.
    Use Obama only as directed.
    As with all politicians, keep out of reach of children.

  23. Anonymous


    God cursed America. The land you used to love.
    He stood beside Her, and he guided her
    Through the night with the Light of his love.
    From the mountains to the oceans
    To the prairies bright with grain.
    God cursed America, your home sweet home.
    WHY did God curse America?

  24. Richard Kline

    As to the thrust of Buiter’s remarks, moved and seconded sez I.

    And Brad Setser, I do not have the impression from what Buiter has written over the last year in public forums that he “believes in real adjustment via deflaton.” It is more that he sees as policy actions which yield mild deflation to be the least bad choice amongst available choices (and I agree with that proposition, if framed that way). Damn the torpedos fiscal stimulus _in out present context_ is likely to have major negative secondary effects, and produce a worse overall outcome. Yes, public debt to GDP may not be at extraordinary levels, but the rest of the world is counting on our repaying all that quasi-public and private debt as well. I have other thoughts on that I’ll put in an additional comment. Regarding “Wouldn’t it be nice if the Chinese would just surrender,” i.e. raise their currency because that would be nice for everybody else, the world just doesn’t work that way. This game is give-to-get. What are we giving?: so far, nuthin’.

    And Jim in MN: “Truly a sad story worthy of the Greeks or of Shakespeare.” Naw, to me this is a Brecht-Weill operetta fer sure. Just wait ’till you read the libretto; it’ll melt the elastic in your socks.

  25. Anonymous

    I think to some extent this argument has come to the fore because of the recent demonstrations in the UK ,France and other European countries. In the UK British jobs for British workers has come back to haunt Gordon Brown as demonstrator placards showing this take prominent place in the news. The argument appears to be that Total has awarded a contract to a company which will employ Italian workers on the basis that the company significantly under cut the price that the other UK based firms wanted. Total argues that the Italian workers will get the same daily wage, but since they will do more work in a day it works out cheaper. Unions argue that UK workers were not given the opportunity to apply for the jobs even though they might be expected to work harder. The UK government’s response seems to be and perhaps rightly so that it is not getting involved.

    Perhaps more subtly and more noticeable in the UK he picks up on the fact that these bailout packages mean UK banks concentrate their efforts and lending in the UK, just as US banks are doing in the US. This is a disaster for those outside of those two economies especially in emerging economies and I feel sure Wen’s recent visit for a chat with Gordon Brown will have been largely about this (along with currency of course). When he says fiscal actions by the US and the UK will also re-invigorate the underlying global imbalances, what he is implying is that the US government is putting the good of American citizens way before the good of World citizens, in a way that will ultimately destroy everyone.

    As for the argument that the US will be unable to fund its debt then, I think this will only happen once investors get fed up of the ponzi scheme of the US buying its own debt and using that as capital. The collapse will happen due to the imbalances involved, it is whether the US protectionist policies take the rest of the world with it.

  26. Richard Kline

    So FairEconomist: “A trade war for heavy-deficit countries mostly drives up the cost of imported goods – lowering the standard of living, but in return pushing up employment via the need for substitutes.” That was then, this is now. This last is a broader point I’ll return to below, but let’s deal with the specifics here first; though I generally agree with you, in this instance I differ.

    That historical analogy assumes that if we _now_ go protectionist, we would ultimately import-replace our way back to gainful employment at comparable or at least acceptable macroeconomic levels. . . . That is difficult to imagine, unless we are speaking of decade-length timeframes, and personally I think no even then. This isn’t a matter of, say, putting up barriers to imported Hyundais so that we substitue Chevy’s for them; maybe, possibly, that might work. We get virtually all our computer chips (and memory chips) overseas. Building plants to do that at home, in the pit of a Depression, is a tough go, dontch think? We get much of our clothing from overseas, though a chunk of it is from Latin America (which has few reasons to do us any too many favors, but). If we bring that clothing manufacturing home, and pay the employees a wage they would tolerate to do the work, we are going to be able to afford so much less of the product that this is bound to be a net employment loss, no matter how you look at it: we subsistue our way to poverty. If we set up onshore sweatshops, that does nothing for the out of work cubicle drones and light industrial orphans who can’t afford to buy in volume. We import a significant share of our machine tools from overseas, a large share from Deutschland, whose manufacturers are particularly incensed regarding that Buy American blubbering. You are knowledgable, so I’m sure you have a handle on how long it takes to train a machine tool operator from scratch; on how much longer it takes to train a competitive machine tool engineer-designer, from scratch. Yes, years from now when those folks are trained, and our new plant comes online, our trashed currency will be enough lower that we will be more competitive. We will have many problems between this year and that year, if we get there at all, and the world will have moved on, too. Substitution _now_ is not the same as it was when industry was much more labor intensive, and hence more adjustable, and we will start this from an exceedingly unstable capital position which by itself may shortcircuit any such effort: this kind of thing can’t be done by government warrant, there has to be commercial finance functioning to make demand do its thing. Why is it that, say, Spain or Thailand dont’ reinvent themselves as low-cost advanced manufacturers? Everyone has the the same potentials, right? Not everyone has the same problem sets, nor hence the same starting point.

    This brings me round to the remarks quoted from Krugman in the comments above. Yes, yes, a ‘little bit of protectionism’ might be no bad thing. In fact, I believe that to be a true proposition put that way; in that sense, I agree _theoretically_ with Krugman, and with the thrust of your remarks also FairEconomist insofar as I understand them. I have no special problem with the principal that countries are best served to protect some of their favored sectors, whether it’s [some] agriculture in Europe, or the banking sector in India and China [which has saved their bacon thus far in The Big One], or if the US had held onto its chip plants by tariffs. In practice, we won’t get a little bit _starting from where we are NOW_; there’s the rub.

    The problem with these positions is that while they have logical arguments with evidentiary support behind them, they do not engage with the realpolitickal realities of the decision contexts within which policy decisions will become actions. Retaliation is all but certain if protectionism is engaged in by any party in the present context, and the consequences can be expected to be major. If the US were to enact sanctions directed at, say, China or Germany—major net exporters—we are the ones in violation of treaty, and we should expect quite hostile public—not simply governmental but popular—hostility from those countries. The pressure for punitive responses tends to spiral. Theories say that, rationally, no one would go there, but we are not a rational species in collective action.

    We have to look at the _context entire_ in considering these things, not just the portions or trajectories which we presently perceive to be desirable outcomes from our present situation. Analogies and theoretical forumations are all very well; I love them, and make them myself: They must be plugged into our PRESENT context of action. And if we do that, it is a rock-solid certainty that in a protectionist tiff or tie-it-on our currency will collapse, and our existing, not emergent but existing, debt positions will do the China Syndrome thing. I should like to hear those advocating for a little or a lot of protectionism as a way to ‘brace up’ our global co-dependents argue a) why this can’t happen, b) why this won’t happen, and c) if it does happen what their projection is for American recovery from beneath that glassy blast zone. There is no reason on Earth why, if we slam doors on a major exporter—China, Germany, Japan, or even France—beggaring their export sector even while they are funding our ‘stimulus deficits’ that you can expect them to continue to take our note. Politically, that’s untenable; practically, it’s undesirable. If we are going to break their legs in the best case, they might as well save themselves. And they will.

    Now, a few Buy American stickers in legislation do not amount to a declaration of war on our parts . . . but others cannot be expect to see this our way . . . and once you start down that spiral slope it is hellish hard to pull up. This, to me, is the reason for the pitch of Buiter’s rhetoric: the only place to stop a conflict spiral is before the first slap in the face. After that, it’s the brass knuckles and iron dice, metaphorically and otherwise.

    A negotiated relignment of trade is the only viable choice, to me; everything else is tied for last. Regrettably, I am reconciled to the imminent probability that we will try every last other thing before we try the only thing that will work (not least because negotiated accords have a track record of working: folks are bought in). Human beans ‘re cussed critters that way.

    And is Bo Prez a wuss? Now, that is never a word I have favored, but that aside it fits his record so far like skinny leg jeans. Anyone thinking otherwise, go right ahead; a year from now you’ll be chipping the Obama/Biden 08 stickers off yer bumpers with a razon blade with steam comin’ outta yer ears, while since I never saw him otherwise I’ll be eatin’ spinach and lookin’ fer a place tah spit, just as I do today. Liberals . . . . Of course Obama will sign Buy American add-ons into law; he campaigned as a moderate protectionist, sees this kind of thing as a cheap payoff to his constituency, has no international experience to comprehend what he will have written or wraught, and will get to ride the tiger which comes with that if so. The brain won’t be turned on on this, so yeah, it’s a no-brainer. I’m not saying that to particularly disss Bo Prez btw. My larger point above is that trade policy is made in a broth of domestic dealer-wheeling in a Klien bottle of econotheory, neither of which engage with the salient geopolitical realpolitickal realites beyond the 100 nautical mile limit. Which is why we, even more than most nations, get these things so wrong so often. Other countries are out of sight, hence out of mind, so we don’t have the facts engaged with our minds when their interests are under discussion.

  27. Anonymous

    How does using our stimulus money to buy American products represent a problem? Wal-Mart will still be selling 99% Chinese goods to us…Give us a break China on something please..I’m concerned our basic needs are not produced in America anymore..If china gets mad at us how many people will be walking around barefoot?

  28. Anonymous

    Yup, the more they do to try and stop this the worse it will get. Too much debt in the system is THE problem and adding more will only make this worse.

  29. HoosierDaddy

    I think Obama would be nuts to veto the bill based on the Buy American provisions. America needs to import less and produce more. Buiter would prefer that Americans go to third world wages in order to facilitate that adjustment. Remarkably enough in a democracy that may not be the mechanism policymakers choose. “Free trade” has not been the path to the land of milk and honey for most working Americans, it has in fact led to increased inequality and stagnant incomes for the bottom 80% of Americans. Brings to mind the old joke of the man who went to the doctor and says “it only hurts when I do this”… If the UK wants to ride the “free trade” train to its ultimate denouement that’s their business. We are not obligated to follow the six hundred into the Valley of Death.

    Besides, if Obama wanted to scuttle the bill, it would be much more politically advantageous to allow the Republicans to obstruct it to death. 2010 isn’t that far away.

  30. S

    using debt in the market, not debt placed with trust funds) – sester

    Exactly whay does that debt not count? This kind of ex items analysis is not credible. The US has approx $11T in debt. Talking about ex inter agency debt is rediculous unless tSester knows about a selective default coming.

    Isn’t it funny how when those advocating the US rates arn;t high point to absolute levels. When they want to dicsuss mortgage rates they point to exhorbitant real rates. Which is it? Is there any better referendum on the uselessness of economics?

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