It appears that Andrew Mellon was right. Labor is being liquidated (dropping out of the labor force). Countless financial and producer firms and households will be liquidated (bankrupted) when interest rates rise. The Fed has been applying an enormous monetary expansion, and the Treasury an even larger fiscal expansion (starting with the first round of Bush tax cuts), and yet the "liquidation" goes on and on.
Why so? After his long sojourn in the global South and East, Malthus is coming home, riding on the back of the world market system, and the macroeconomic "toolkit" is utterly powerless to stop him.
Recent history suggests that modern mercantilism ("export-led growth" in the obscurantist vocabulary of -liberal economics) might be able slow Malthus for a while in nations that are adept at practicing it. But of course, if all nations were to become adept mercantilists, emulating, say, Germany or Japan or China, the world would not need its ongoing population explosion to return to its stable Malthusian state.
This author is right that many European nations have experienced a loss of competitiveness.
But he fails to mention that Germany retained its competitiveness by stealth adoption of the east Asian model, to wit, using the power of the state to transfer wealth from households (consumers) to certain firms (export producers).
If every nation did that, the world economy would crash and never revive. By comparison, the current depression would be mild.
In short, Germany has been taking a free ride on more liberal nations (Ireland, UK, Italy, USA, etc). Nice ride while lasted, hmm? And this author merely wants Germany to keep on free-riding right through the ongoing depression.
Superb essay. Five years after the financial crisis, the American economic decline still is in phase two: 1) Out-migration of manufacturing 2) Rising net debt (private and public) 3) Rising unemployment, declining debt 4) Declining wages, declining unemployment
The late 20th century global system--among the largest national economies, one liberal (USA), and three mercantilists (China, Japan, Germany)--was unsustainable. Two of the mercantilist nations became much richer, and the liberal nation poorer (way poorer than it will admit), until the system crashed. So a prominent liberal economist here advises the most successful mercantilist nation to become liberal. Will it take that advice, do you think? Not until the liberal nation retaliates with mercantilism of its own, I suspect. The Fed seems to know this but the Fed will need a lot of help--a steep VAT, deniable tariffs, etc.
It is even worse than Professor Rodrik says. The neoliberals are in denial not only about the worldwide success of mercantilist industrial development. Wedded to the bizarre and extreme views of Say and Walrus, they ignore the Malthusian-Ecclesian-Keynesian tradition and, hence, cannot understand the nature and causes of the ongoing crisis.
The neoliberals are divided into two camps. One camp says the economy will recover quickly and completely if left alone; the other camp says the economy will recover quickly and completely only if there is a massive and continuing transfer of debt from the private to the public sector.
Could it be that both camps are wrong? That neoliberalism never will recover?