Westwood Capital's Alpert: Economy Suffers From Entrenched Problems

Wednesday, 02 Oct 2013 08:34 AM

By Michael Kling

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Problems with the government shutdown and debt ceiling are nothing compared with our entrenched economic troubles, according to Daniel Alpert, founding managing partner of Westwood Capital and a fellow at the Century Foundation.

We suffer from a persistent oversupply of labor, oversupply of production capacity and oversupply of global capital, Alpert asserts in an op-ed for The New York Times.

That's why the supposed recovery has been so weak it has to reach escape velocity. We're stuck in a rut, writes Alpert, author of "The Age of Oversupply: Overcoming the Greatest Challenge to the Global Economy."

Editor’s Note:
New Video: Obama Plans to Redistribute Seniors’ Wealth

"Policymakers are still fighting the last war," he states, by following supply-side economics of easy money, lower taxes, fiscal belt-tightening and deregulation. Those tactics no longer work.

The opening of emerging market economies around the world — including Eastern Europe, Latin America and Asia — prompted a "reverse supply shock." Nations that recently had "sleepy or sclerotic statist and socialist economies" are now competing directly against workers in the United States and other developed countries.

Developing nations suddenly have huge surpluses and sovereign wealth funds, Alpert writes.

"The rich countries of the world, while still rich, struggle with monumental levels of debt, both private and public, and unsettling questions about whether they can compete globally."

Capital, mostly from trade surpluses and enormous savings in Asia, flooded the global capital markets.

Understanding the impact of emerging market economies on the global economy is key to understanding causes of the financial crisis as well possible solutions, he argues.

"Cheaper credit through monetary easing, for example, doesn’t yield much in an era when cheap capital already exists in abundance," he says.

Alpert calls for huge public sector investments to reduce unemployment and improve infrastructure, as well as improve efficiency in healthcare and higher education.

Ideological gridlock blocks our return to prosperity, he argues.

"Frenzied, supply-side insistence on allowing markets to work matters out, and diatribes against government-led economic activities may please right-wing political constituencies. But simply ignoring the earnest fortitude of billions of new global workers is no way for this nation to stay rich and competitive."

Alpert's book offers a good diagnosis of economic problems and many good ideas, writes former hedge fund manager Andy Kessler in a book review for The Wall Street Journal.

However, Alpert's attempts to blame supply-side conservatives for the world's problems make the book seem more like a political rant than a business book, he contends.

Alpert's main solution of using government debt to boost the economy reveals an "oversupply of confidence in the government," Kessler concludes.

Editor’s Note: New Video: Obama Plans to Redistribute Seniors’ Wealth

Related Stories:

Investment Banker Alpert to Moneynews: 'Massive Deflationary Forces' Lurk

Blackstone's Baratta: 'We're in Middle of Epic Credit Bubble'

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