Smarty_Pants

What Can the U.S. Learn from Japan?

A fine summary of the swiss cheese theory of economics. You know, the theory that's full of holes.

Economic analysis of Mr. Koo is based on the wrong assumptions, aims for the wrong goals, and comes to the wrong conclusions. Monstrous amounts of gub'mint spending won't do anything but get everyone further in debt, which is basically the cause of the problems to begin with.

Why is a reduction in GDP bad if the economy is producing things that people don't want? We could have everyone produce buggy whips, but what good would having $3 Trillion worth of buggy whips be other than to point at and say we had a $3 Trillion GDP?

The whole point of the economy is to allocate limited resources to the most desired uses. The 'most desired use' is determined by the demand from consumer spending given their incomes.

If the entire economy is engaged in making the WRONG stuff, then maybe shrinking GDP for a while to shift production to the RIGHT stuff is the best way to proceed, before you have billions of buggy whips laying around collecting dust.

Our current problem can be simply stated as having borrowed too much and spent it on stuff we don't really need thereby signaling business to set up production capability to make that stuff. Now that we can't afford to pay back our loans, we have cut back to spending on stuff we really need and those who are making the stuff we bought before but didn't need are finding out their products aren't wanted any more.

The first and best step forward is to fold the businesses who can't make profits (ie. selling stuff people don't need), liquidate their debts, and sell off their assets to businesses who can make profits (ie.making stuff people do need).

If that shrinks GDP then so be it. We will be better off in the long run.