What is the real problem with the global economy? The traditional academic position, espoused by Paul Krugman, Christina Romer and most the White House and Federal Reserve is that this ever since 2007 we have experienced a series of severe negative demand shocks — starting with the bursting of the housing bubble, the sub-prime bubble, the implosion of AIG, Lehman Brothers, and Bear Stearns, and continuing through the European debt crisis, various natural disasters and geopolitical upheavals — which first brought us into crisis, and have since imperilled any nascent recovery. The staunchest view – pushed especially by Krugman — is that the only way to reverse the effects of these demand shocks is through massive stimulus, to create a multiplier effect and raise aggregate demand.
But I believe that simply juicing the wheels of the economy with more money is simplistic, frivolous and mechanistic. We have to understand that the negative demand shocks are not simply bad luck or statistical noise, but instead reflect the reality of severe underlying structural problems. And without solving the underlying problems, a stimulus will keep things ticking over for months or years, until the same problems rear their head again down the road.
So the dissenting view, as posited by myself among others, is as follows:
Those troubles are non-monetary — they are systemic and infrastructural: military overspending, political corruption, public indebtedness, withering infrastructure, oil dependence, deindustrialisation, the withered remains of multiple bubbles, bailout culture, the derivatives-industrial complex, food and fuel inflation and so forth.