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http://www.aspousa.org/index.php/2009/12/paul-krugmans-free-lunch-theory/

Paul Krugman’s Free Lunch Theory

........The List

Why might I think that the kind of growth Krugman envisions is impossible? Rather than resort to subtle arguments, I will deploy overwhelming brute force.

This is an economy & a society:

whose automobile industry is a shambles

whose manufacturing base has been in decline for decades

where “full” employment (~5%) likely will not return until sometime in the 2016-2020 period (see Figure 4 and the discussion below)

where non-wealth-creating consumption (PCE) makes up about 71% of GDP

whose total (public & private) debt-to-GDP ratio is north of 350% and is now rising faster than defaults, asset sales or payments can pare it down due to increased public debt (see Figures 1, 2, and 3 and the discussion below)

where real income actually declined over the last decade

where “over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.”

where home prices, which were the principal source of household wealth in a bubble economy, have likely not yet hit bottom

where household wealth has fallen precipitously as a result

whose overbuilt residential investment sector (new housing) will stagnate for many years to come

where there are 23.1 square feet of shopping center space for every American

where rising health care, food and energy costs are eroding household disposable income

where over 45 million Americans lack any kind of health insurance

where the cost of an college education has increased far in excess of the inflation rate for decades

where wealth & income inequality is at its highest level since 1928

where 49 million Americans went hungry at some point in 2008

where 1 in 8 Americans and 1 in 4 children receive food stamps

where total bank credit of all commercial banks is contracting, not expanding where several regional banks fail each week

where the government insurance system for depositors (FDIC) is insolvent

where “enormous budget deficits in nearly every State in the Union are ‘wreaking havoc’ on government employees, the services they provide, and the residents who need them most”

where the Central Bank (aka “the Fed”) is accountable to no one, and is thus free to print money for any purpose it deems important, including monetizing the debt or bailing out too-big-to-fail (TBTF) banks

where Congress has been “captured” by those they must regulate across all industries, and so does literally nothing or practically nothing in the name of reform

where the Executive branch of government (i.e. the Treasury) mostly serves the interests of highly over-leveraged TBTF banks

whose politically powerful TBTF banks drain huge amounts of capital away from wealth-creating activities

whose negative current accounts (trade) balance exploded during the years leading up to the financial crisis and still shows a substantial deficit (exports versus imports)

whose declining oil production peaked in 1970 whose concomitant dependency on oil imports has been rising for decades (see trade balance)

whose government debt must be funded by Asian & European central banks and oil exporters

which is involved in one costly but pointless occupation (Iraq) and one pointless but costly foreign war, and is on the verge of expanding the war (Afghanistan)

* Not all items are documented (linked), but ample documentation could be provided


That’s enough—you get the idea. The list is not comprehensive. I didn’t stop because I ran out of material. Some indicators more time-sensitive than others, so improvements will vary over time if the situation is reversible. For example, home prices should bottom out sometime in the next few years. On the other hand, nothing will fix our declining oil production. Some items are sensitive to political circumstances, e.g. the non-accountability of the Fed.

Other indicators, for example those illustrating growing poverty, may not directly affect GDP growth. These points are meant to show a society going rapidly downhill.............