Saturday, July 27, 2013

The Speech On The Economy That Obama Did Not Make

Econospeak posted a response to a post by Krugman in reference to Obama's recent speech on the economy.  It was mainly about a distinction that Krugman made between the views of Stiglitz and Minsky.  Krugman, however, was less concerned about the distinction between Stiglitz and Minsky than he was about shifting their focus on structural issues in the economy back to the issue that he prefers to write about.  Krugman believes that it will take us a long time to fix the inequality issue raised by Stiglitz or the overuse of leverage by the banking system that Minsky wrote about.  He focuses his attention on stimulating aggregate demand in order to reduce unemployment.

Consequently, I have posted a quote from Econospeak which had little to do with the differences between Stiglitz, Minsky and Krugman.  It focuses attention on the connection between trade deficits, budget deficits, and income inequality.  This is a speech that no US president would dare to make.

If I were Obama’s speechwriter, I would say something like this: America’s economic pre-eminence and its key currency status has enabled it to become an unsustainable deficit country.  This has fed the inequality that has made our society so much coarser and unjust.  And this inequality, the ability of an economic elite to prosper while the rest of us languish, has undermined the political will to make the changes that need to be made if America is to prosper again.

And if I wrote that, I wouldn’t be Obama’s speechwriter much longer.

The US has been running trade deficits of around 5% of GDP for many years.  Those trade deficits led to lost jobs and lower incomes for many Americans.  Government borrowing and spending and consumer borrowing and spending has been necessary to compensate for large trade deficits.

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