Depressing economics
Willem Buiter is worried:
I used to be optimistic about the capacity of our political leaders and central bankers to avoid the policy mistakes that could turn the current global recession into a deep and lasting global depression. Now I’m not so sure.
I share his fears, though not in all details. Protectionism, I’d argue, is less of a danger — both in terms of whether it will actually happen and in terms of how bad it would be if it does — than Willem thinks. But the capacity of our leaders and central bankers to avoid depression-era policy mistakes — and, I’d add, the capacity of our economists to avoid falling into depression-era fallacies — is proving far less than I’d hoped.
In the United States, the Republican party remains committed to a belief in that old tax-cut magic, with no willingness to rethink its doctrine in the face of catastrophe. In Europe, the ECB is basically operating on the principle that unorthodox policy would be very hard, so we must assume that no such policy is needed. And so on.
And economists, who should be helping introduce some clarity, are on the whole making things murkier. I had thought that the lessons of the Depression would help guide us through this crisis; but it turns out that a large part of the profession knows nothing about those lessons, and is peddling fallacies exploded three generations ago as if they were profound new insights.
So yes, we can have another depression — because those who refuse to learn from history may be condemned to repeat it.
Paul Krugman
http://krugman.blogs.nytimes.com/200...ing-economics/