Reply #16: To Get Back on Track, Grow That Economy by: Paul Krugman

[Demeter]

http://www.truth-out.org/to-get-back-track-grow-that-economy67613

Advanced countries’ economies still have plenty of room to grow, yet some economists have been arguing lately that global growth is hitting supply-side limits, and that not much can be done through policy to fix it.

The argument has arisen because high unemployment and low inflation prevail in advanced economies, while the rest of the world is facing accelerating inflation, together with rising commodity prices.

John Kemp, an economist for Reuters, wrote in a January column: “Monetary authorities in the United States, Britain and, to some extent, the euro zone are focused on the need to close national output gaps. But at a global level it is not clear an output gap exists. Rapidly rising food and energy prices suggest the economy is already hitting the speed limit of non-inflationary growth.” Mr. Kemp goes on to explain that some commentators, including myself, believe that a lack of sufficient demand is what is driving the global economy’s problems, and that a combination of policies that encourage government spending and monetary expansion would be a good solution. However, Mr. Kemp wrote, “the problem is not aggregate demand but its distribution.”

That assertion is questionable because, in fact, both problems apply.


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