"What Would Recovery Look Like?"
A friend asks via Twitter “assuming (for sake of arg) the stimulus stops the bleeding, what replaces the actual day to day GDP lost in finance and housing.” The answer, of course, is progressive blogs. Or, actually, I think the answer is that we’ll be making stuff for Chinese people:
In the short run, of course, we’re doing some fiscal stimulus. But if you want to be optimistic and assume that global coordination of fiscal policy plus “unorthodox” monetary policy plus banking reform puts the world back on course for growth, what needs to happen then is a rebalancing of global flows of trade and money. The United States will have about all the houses it needs, so employment in the building-trades sector will be lower. But the people and resources employed in that sector are still capable of doing useful work. But American households won’t have that much capacity to consume additional stuff. Americans will need to start making more products and services that people in East Asia and Germany and the oil-exporting countries want to buy. My understanding is that the main export goods we specialize in are airplanes, defense systems, and pop culture. Presumably if the dollar crashes far enough then other kinds exports become more competitive. But while I doubt progressive political blogs will ever become a really huge industry, it is the case that the software/media/creative fields appear to be one of our comparative advantages so presumably people will need to work in those sectors. Beyond that, hope for arms races.
A return to something like full employment would make everyone feel a lot better since unemployment and anxiety about unemployments have costs beyond the purely financial. But it might take some time after that for Americans as consumers of goods to return to the levels of consumption enjoyed in 2000 or 2007. We’ll need to be consuming less as a share of income, so incomes will need to get higher than they were back then.