Tuesday, June 26, 2012

Jerry Brown and Paul Krugman on the failure of elites, then and now

From Candy Crowley's interview with California Gov. Jerry Brown, CNN 08/05/2011:

CROWLEY: I sense that you are angry?

BROWN: No, I'm not angry. I'm just, I'm alarmed at, uh, at, uh, where America is. I mean, we, you know, you look back at history and all the elites, the ruling families of Europe in 1914 were feeling pretty good about themselves. And yet, it wasn't just a few months into the summer when they began what was an absolute catastrophe. So blindness is compatable with good breeding, good education and good relationships. Well, we don't even have that now in much of Washington. [my emphasis]
From Paul Krugman, who I've been quoting a lot lately, for what I take to be good reasons, The Great Abdication New York Times 06/24/2012:

But now I'm hearing more and more about an even more fateful year [than 1937]. Suddenly normally calm economists are talking about 1931, the year everything fell apart.

It started with a banking crisis in a small European country (Austria). Austria tried to step in with a bank rescue — but the spiraling cost of the rescue put the government’s own solvency in doubt. Austria’s troubles shouldn’t have been big enough to have large effects on the world economy, but in practice they created a panic that spread around the world. Sound familiar?

The really crucial lesson of 1931, however, was about the dangers of policy abdication. ...

None of this should be happening. As in 1931, Western nations have the resources they need to avoid catastrophe, and indeed to restore prosperity — and we have the added advantage of knowing much more than our great-grandparents did about how depressions happen and how to end them. But knowledge and resources do no good if those who possess them refuse to use them.

And that's what seems to be happening. The fundamentals of the world economy aren't, in themselves, all that scary; it's the almost universal abdication of responsibility that fills me, and many other economists, with a growing sense of dread.
Krugman again, Deleveraging and the Depression Gang 06/25/2012:

Now look at what the serious people say: we must have fiscal austerity, not stimulus, because debt is bad; we must not have unconventional monetary policy, because that would endanger "credibility" (where it’s not at all clear what that means).

So basically, we must do nothing to fix this horrific market failure, and allow unemployment to fester instead.

It’s really awesome, when you think about — not just that we’re committing this massive act of folly, but that it’s all being done in the name of sound policy.
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