Photo: Munk Debates
Munk Debates organised a match-up of economic titans Monday.They were: Paul Krugman, David Rosenberg, Larry Summers, and Ian Bremmer.
Krugman and Rosenberg argued that the United States “faces a Japan-style era of high unemployment and slow growth,”
Summers and Bremmer argued that while the country may have severe economic problems, they do not constitute or precede a “Lost Decade.”
There were supposed to be two sides to this debate, however it quickly became clear that the members of each team did not fully agree.
The audience was asked to state its feelings at the beginning of the debate and the end.
'Can individual entrepreneurship, corporate innovation and governments create a new era of sustained economic growth? Or, will the financial crisis, U.S. political dysfunction, and the rise of emerging nations erode our living standards for the long term? Fundamentally, will the next generation of North Americans enjoy the same quality of life as its parents?'
Source: Munk Debates
When Japan's economy took a spill, 'the world was working.' Now the global economy is incredibly troubled, so these aren't just U.S. problems.
Rosenberg argues that there are two options to make the housing sector solvent: either pay down its remaining $3 trillion or more or default.
He referred to an index of Treasury-protected securities as a proxy for interest rates. 'I'll let the market do the talking,' he said. 'Mr. Bond, thank you very much.'
'The big new things are coming from the U.S.,' Bremmer argued. 'It's because when Americans are educated they're taught to question why.'
It's 'the place where everyone in the world wants to come, the place where everyone in the world wants to put their money.'
He compared the U.S. and insufficient demand to a car with an electrical problem: 'If you don't fix this technical problem, there's nothing else that's good about the car that will make it go.'
'The U.S. political system has changed fundamentally. We are not the country we were...I have now got a deep pessimism about the state of the U.S. political system.'
'Those who say that the U.S. is now hopelessly gridlocked do need to remember this fact,' he said, in order to put today's political bickering in perspective.
If the problem 'is one of excessive indebtedness, then enlighten me: what is the policy prescription? Because someone's liability is somebody else's asset.'
Summers: But we'll suffer high unemployment and stagnation until we deal with our demand deficiency.
Krugman agrees with him.
Investors 'go to the dollar or they go to gold. Let me tell ya--last I checked, gold isn't a country.'
Krugman: Just because America is everyone's favourite place doesn't fix our problem of depressed demand.
If after 10 years population growth accounts for higher GDP and we still don't have growth in demand, he argues, we would still have had a lost decade.
Then you are 'contributing to a pessimism that, as a self-fulfilling prophecy, can be and--I believe--will be catastrophic not just for North America but for the world.'
'...And the truth is that we have a fixable problem but a political system and a political alignment that shows absolutely no intention or willingness to fix that problem for at least quite a few years to come.'
Griffiths: How about Occupy Wall Street and this debate over inequality in the U.S.? What does this all mean?
'Inequality has, in effect, warped the perspective of our political elites,' he continued. 'I don't think inequality is crucial...but it is a weakness.
'And that is something we want to encourage,' he added. But he qualified that a trend towards even more inequality was 'highly problematic.'
Ed Clark is the President and CEO of TD Bank.
'I don't think it's so much that the policies change as is the willingness to kick the can down the road.'
'But I don't believe the U.S. needs to do that, and I believe it would be enormously dangerous if the U.S. were to do that, both for American interests, for global peace, and for freedom around the world,' he added.
He argues that no economy has ever come back from a financial crisis without an expert-led recover, something we're not seeing from Washington right now. 'To be an optimist you have to believe that America is going to find a way to do something that no one has ever done before.'
However, he says that--if he believed the other side--eliminating $1 trillion of write-offs and tax loopholes, increasing investing incentives, a coherent, job-creating energy policy, and finding a way to give people back equity on their homes could be part of a 'grand jubilee' that could return the U.S. to growth.
Kim Parlee is a Canadian journalist and anchor on Business News Network (BNN).
'This is a great opportunity if you're Canadian to say, 'Wow. We need tor really take advantage of the other countries out there that are growing a lot and want to take advantage of our commodities.''
He says this is the reason that Canada, like Sweden, has been able to weather the financial crisis so well.
Krugman: A Republican would doom the country, but Obama could make progress if he can get bipartisan support.
He said Barack Obama is 'going to have to find a way to break that 60-vote rule' and use his presidential powers to sidestep Congress.
He joked, 'If Hank Paulson can go down on one knee and beg Nancy Pelosi to pass TARP for a second time, anything must be possible.'
Summers said there are two policy prescriptions that GOP candidate Herman Cain gets right: the needs to raise demand and to enhance business confidence.
They argued that inefficient demand was causing the slow recovery and would continue to threaten growth, and differed only in their assessment of whether or not the government would have the capability to fix the problem.
He argued that the U.S. will still garner the highest levels of investment and the best human talent simply because 'where else do you go?' He explained that Japan, China, and Europe are so far behind ideologically that the strength of American ideals will continue to pull the economy through.
Rosenberg took a far more cynical stance than the rest of the debaters, arguing that the U.S. economy is already in a Lost Decade, weathering a deleveraging cycle that it has no hope of escaping. Serious structural problems will hold it back for at least the next five years.
55% of the audience (versus an initial 56%) voted for the Lost Decade proposal, while 45% (versus an initial 25%) voted against it.
'If only the political class in the United States and Canada could rise to this level of debate we've seen tonight, we'd all be in a better place,' Griffiths stated, to audience applause.