Why the Government Should Spend Us Out of Our Doldrums
As financial markets from New York to Hanoi are focused on the U.S. Federal Reserve’s next move, Daniel Alpert’s “The Age of Oversupply” explains that there are limits to how much monetary policy can help the global economy escape its five-year rut.
The book couldn’t be more timely, appearing so soon after the Fed’s surprise decision not to taper its bond buying buoyed stock and bond prices worldwide.
Alpert says that our problems, including the 2008 meltdown, are due to a glut of labor and capital that has emerged in the past two decades, since former socialist countries and other underdeveloped nations opened up to the rest of the world.
Billions of people have been added to the global labor force and trillions of dollars in savings to the capital chasing returns.
When there’s so much capital in the system already, how can the Fed pumping more cash into it help revive the economy?
It has only kept things from getting much worse, Alpert says. The real solution, he says, is to stoke global demand -- through sizable government spending in the West and encouraging consumption in emerging markets.
Alpert -- a veteran investment banker who now runs his own boutique firm, Westwood Capital LLC -- isn’t the first to point out the dangers of global trade imbalances.
Many, including the International Monetary Fund, have warned that they can’t be sustained forever. Still, “The Age of Oversupply” does a great job of explaining complicated connections between many contemporary economic issues.
Alpert gives step-by-step instructions for what the U.S. and the European Union should do to revive their economies, relying mostly on infrastructure investment. Alpert made similar recommendations in a 2011 paper co-authored by Nouriel Roubini and Robert Hockett that didn’t garner much attention.
While the U.S. Congress debates cutting the deficit, Alpert isn’t worried about increasing the government debt through his $1.2 trillion, five-year plan to invest in areas including energy, transportation and education. Even in Europe, where the most troubled countries like Greece are grappling with much higher debt ratios, there needs to be more government spending now to save the future, he argues. Those should be financed by their richer partners in the monetary union such as Germany.
Alpert strongly disputes the findings of Carmen Reinhart and Kenneth Rogoff about the connection between higher government debt and slower economic growth, which they outlined in “This Time Is Different.”
When the lack of global demand is at the root of our problems, government spending to promote it is preferable to austerity measures that can choke it off, Alpert says.
The diagnosis and the solutions presented in “The Age of Oversupply” raise some questions that are not answered.
One is how to convince the newly emerging middle class in China or India to save less and consume more before their governments start providing sufficient pensions or health care. Or why those governments should stop pursuing “mercantilism” when they’re just following in the footsteps of Western nations to catch up with them.
“The Age of Oversupply: Overcoming the Greatest Challenge to the Global Economy” is published by Portfolio/Penguin (280 pages, $27.95).
(Yalman Onaran, a senior writer at Bloomberg News, is author of “Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy.” The opinions expressed are his own.)
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