Monday, November 02, 2009

One crisis, many stories 

I greatly enjoyed my visit last Friday to the Minnesota Economics Association. I had gone a few times years ago and thought it was a bit too erudite and the format like a set of seminars. This year had two panels and two papers.

I was on one of the panels, discussing fiscal policy. Those who know me and the other economists on the panel probably expected a few sparks based on politics, but there was very little disagreement. In short, the fiscal policy stance of the current administration is untenable. I didn't use but wanted to "Stein's Law": things that can't go on forever, don't. (That's Krugman's version, and I like it.) What I was speaking about was the effect internationally, and I played off two countries, China and Armenia, that I visited in the last six months.

The effects are very different. While China continues to grow with a very small pause earlier this year, the Armenian economy is getting whacked hard. There may be perhaps a 17% decline in GDP, and jobs are scarce. Some of it is brought on themselves by a construction boom, but it's not like they had subprime mortgages there. And as the U.S. fiscal policy stance pushes interest rates higher elsewhere in the world, what happens to their capital formation rates?

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