Right on!

Paul Kedrosky: When Governments Attack ! (Or At Lease Cause Depressions)

The Current Financial Crisis: What Should We Learn from the Great Depressions of the Twentieth Century? – Staff Report 421 – Publications & Papers | The Federal Reserve Bank of Minneapolis

Another good quote from the paper Paul links

The people and the governments of some countries may decide that there should be some sort of social insurance for workers who lose their jobs, for households who lose their homes, and even for firms in some sectors or regions. If so, this insurance should be provided directly and not indirectly through massive and indiscriminate bailouts of firms.

The lesson from the ‘lost decade in Japan’ is that they had no growth because productivity stopped growing, presumably because the Japanese kept zombie banks and zombie firms going. There was little ‘creative destruction’ nor innovation. It also didn’t help that the Japanese paved much of the country over with bridges to nowhere. But it is the productivity growth that matters–and you probably need market forces to get the productivity growth.

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