Wednesday, November 17, 2010

It really is a tragedy: Krugman on the global Pain Caucus

It's likely that someday in the not-too-distant future a lot of people will look back on 2008-10 as a time of astonishing delusion, in which countries that should have known better from their own experience tried to combat the early stages of this depression that same failed way that Herbert Hoover did. He at least had the excuse that virtually no one at the time assumed that massive borrowing and governmental spending in the midst of a recession would be a good thing. How so many responsible leaders embraced such a notion this time around is a real matter for amazement. Maybe we should call it the poisoned fruit of the neoliberal/globalization/Washington Consensus tree. Paul Krugman blogs in Axis of Deflation 11/13/2010:

But almost the whole world has turned against doing anything that might actually help. Fiscal policy has been killed by the Pain Caucus; and now they’re coming for monetary policy. China’s predatory policies are hurting everyone else — but somehow Ben Bernanke has become global enemy #1.

It’s not as if the job of recovery is done. True, Europeans are acting as if they’re fully recovered — but the truth is that eurozone industrial production is still below its 2005 level (pdf), and seems to be stalling. Worldwide, we probably have an output gap — resources going to waste, because we’re not using the productive capacity we have — of at least $2 trillion at an annual rate.

The sad thing is that this is entirely gratuitous. With clear thinking and a little political courage, we could have ended the slump by now. Instead, however, it seems likely that the whole advanced world — not just the United States — is headed for years and years of stagnation and mass unemployment.
See also his post, The Dark Ages, Returned In Full 11/17/2010.

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