Yes, Art, there is a bit of an uneasy fit in the article between:
- There is no slowdown in productivity growth. That means that economies can grow as before if they manage to keep all factors of production busy
- But they can't, as a result of private sector deleveraging (or euro related issues in the EU)
- It's therefore somewhat odd to say, as the author does, that both sides of the stimulus side are illusionary as the present economic problems are clearly on the demand side. The supply side is doing fine.
It's somewhat difficult to escape that the solution must either:
- Increase demand via public means
- Redistribute towards middle classes with a higher propensity to spend
The first is what they're now trying in Japan (jury still out), and both at the same time is what they did in Argentina post 2001 crash and this worked remarkably well until 2007/8 they went completely overboard with it and despite unfriendly supply and financial policies. They should have taken the foot off the accelerator from 2010, but they didn't and ebmarked a whole series of own goals (many of them quite ridiculous), but that doesn't mean the first Kirchner years (2002-2007) weren't a success, Argentina grew twice as fast as the highly touted Brazil, although arguably from quite a depressed level. But when you have lots of spare capacity, that's what you have to do, unless that capacity rusts away with little incentive to build additional capacity, the associated employees lose their skills.