This is a great discussion, if somewhat frightening.

But if the dollar doesn't fall, then we have a long-run problem.

Well, isn't predicting sectoral shifts something of a mug's game? We can all speculate about what's going to be the next big growth driver, but isn't this ultimately up to entrepreneurs?

Of course subsidizing high-spillover research is a legitimate task of government, and requires some sectoral analysis and prediction to set project funding priorities.

But how worried should we be that we can't figure out how the economy will transform in the next decade or two? Maybe we should just focus on education and cast a broad R&D subsidy net, and let entrepreneurs take care of the rest.

Ahhhh, for Xris sake.

"Lack of clean water is responsible for more deaths in the world than war. About 1 out of every 6 people living today do not have adequate access to water, and more than double that number lack basic sanitation, for which water is needed. In some countries, half the population does not have access to safe drinking water, and hence is afflicted with poor health. By some estimates, each day nearly 5,000 children worldwide die from diarrhea-related diseases, a toll that would drop dramatically if sufficient water for sanitation was available."
http://www.engineeringchallenges.org/cms/8996/9142.aspx

There's probably not enough steel making capacity in the entire world to get the job done.

And I don't give a rat's ass if not one single person on Wall Street or in the City of London gets so much as a dime from getting the projects needed built. It's a simple question of morality, and the financial smoke and mirrors be (and are) damned.

And I consider DeLong one of the better economists. Man, we are so screwed.

Thanks Brad for crediting us with the intelligence to realize your tongue is in your cheek.

Of course there isn'tsome other leading sector in which we will magically be able to compete. Nor as Keynes said 70 years ago is there any reason why the things we do here can somehow be done more efficiently in some other country. Nor need there be.

Just maybe our anthem should be the last verse of Bernstein's Candide

We're neither pure not wise nor good

We'll do the best we can

We'll build our homes and chop our wood

And make our garden grow.

And make our garden grow.

We just have to make our garden grow. Take care of our own needs. To the extent it is in our interest permit imports and as needed to finance them export some of the things which we'll be able to produce cheaply enough given the advantages of scale which we can obtain in our own market.

And make our garden grow.

The only answer I can think of is for the U.S. to then become the world's largest private-equity fund: they lend us their money, and we then invest the money back in their economies--

Is the tongue in cheek?

We did that. It didn't work out well. Please to wake me when we bottom so we can see if we unwound everything to the point that we might as well have not bothered going forward from '96 or '98 or '00.

in industries and companies that then have a very high demand for U.S. high-tech goods

Nobody has a demand for high tech goods at this point, and more in particular not our, since we don't make that much of that anymore.

and for U.S. services exports.

So we become the service industry for the service industry of Bangladesh? Seems rather like Douglas Adams method for achieving flight: avoid the ground.

At any rate, having thought about it some it occurred to me we have had five major (long) depressive episodes in our (American) history: the 1780's, 1837-44, the Long Depression of 1873, the Great Depression of 1929, and now. Having thought about it some more, I can see that they are all tied to the end of assorted financial escapades. That is, in order, the destruction of the Continental (which got us though the war, so I'm not kicking), the funny business with the 1st and Second Banks of America during 1816-1837 followed by the adoption of free banking, the greenback inflation of the Civil War followed by the specie deflation of the post-war, and the fun & games of Alan Greenspan's predecessors during 1913-1929.

They are, also linked to the ends of wars (albeit at a distance in a coupla cases). The end of the Revolutionary War, the end of the War of 1812, the end of the Civil War, the end of WWI, and now, which I was suspecting was about the end of the Cold War. So I looked at Krugman's link for relative speding as a % of GDP, and whaddya know, after the recession of 47-48, defense spending kicked back up and stayed that way through the middle 90's, state spending steadily rose the whole way, and overall Federal spending dropped from cycling around 23% to cycling around 17%.

Of course, that doesn't count Iraq (since it is offbook) where we massively overpay favored contractors to build shoddy non-functional schoolhouses which we then blow up. But that gives a baseline to try and figure out why Reagan (a conservative) was not anywhere near the fool that Bush the stupid was and is. After all, Reagan went after the poor with a hammer, and that's not good, and of course, he ran up huge deficits that subsidized the better off. BUT, he did not get into any serious wars, so most of his Keynesian stimulus went to buying equipment many parts of which were provided by such arch defense contractors as DEC, Intel, AMD, IBM, Microsoft, AT&T and Sun. And they in turn sold their stuff to the little people after they sold it to DoD.

Ergo, we need to spend in such a way as to drive spending back up to 23-24% of GDP, without getting into a war. And if we want this thing to end, we need new industries (not a few, but a bunch), so we have to create them. We need to take advanatage of our real exceptionalism and run around and reinvent everything, not just a narrow conception of green energy. Not just infrastructure, but WAY BETTER infrastructure. Something (we know not what) will pay off.

Additionally, we need to stop screwing around and buy the banks, and punch down the mortgages and the credit cards balances, since HEY! we're paying for it. (That is, we convert the credit card balances into fixed interest loans worth 50% of the previous value.) In effect we declare consumer bankruptcy without punishing individuals. Of course, the well-off will frown mightily, but I say we just forgive everybody, that way we can skip the ugly part where we string the bankers up by their intestines (which would surely result in some debt forgiveness). Less consumer debt + way more spending (and eventually some serious progressive taxation) = major boost to the demand curve.

max
['And when we have invented a bunch of new stuff, we taper back on the spending and we can be all free-market-y again.']

Oh yeah, forgive all the loans so that the irresponsible fools who got us into this mess (the people taking out loans being every bit as culpable as the people giving them out) are encouraged to do it all over again... at the expense of responseible taxpayers who spent within their means.

Has anyone heard of moral hazard around here? Just curious.

The new growth industries will be what they will be. Create incentives to work and invest and there will be millions of people smarter than anyone in the Bush or Obama administrations working night and day on the problem.

Subsidies for education and research, rather than farmers and fishermen, would help. But "what is the next growth industry" is not a worthwhile question to ask government. When government decides what the next growth industry is, you get... well... the housing bubble.

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