Joseph Stiglitz has a particularly lugubrious op-ed on the limits of monetary policy in jolting the economy out of its stupor:
In other circumstances, the US would benefit from the exchange-rate weakening that follows from lower interest rates – a kind of beggar-thy-neighbor competitive devaluation that would come at the expense of America’s trading partners. But, given lower interest rates in Europe and the global slowdown, the gains are likely to be small even here.
Some worry that the fresh liquidity will lead to worse outcomes – for example, a commodity boom, which would act much like a tax on American and European consumers. Older people, who were prudent and held their money in government bonds, will see lower returns – further curtailing their consumption. And low interest rates will encourage firms that do invest to spend on fixed capital like highly automated machines, thereby ensuring that, when recovery comes, it will be relatively jobless. In short, the benefits are at best small.
A beggar-they-neighbor policy works just fine until you have, in fact, beggared your neighbor. Then what?
That’s essentially what’s happened over the period of the last couple of decades. China and Germany have both prospered at the expense of their trading partners and their trading partners, euphoric over the flood of cheap goods, have let them. Mr. Romney is worried about the former part of that equation; I’m more worried about the latter part.
In his piece Dr. Stiglitz is promoting fiscal stimulus. Would increased consumer spending in the United States produce increased employment here? Or would it produce increased employment in China?