This article by my friend Nobel Laureate Economist Paul Krugman hits all the right notes in the siren song of the day — telling us the whole story of our Economies.
Paul is speaking candidly about why where we are today is a painful place, why we are not reaching the safe harbour where we want to be, and why we are going nowhere fast except towards the panic driven, fearful & pain thrashed land of the Lilliputian leaders…
And he’s also telling us why we aren’t getting any succour anytime soon…
At least not in 2013…
So button down the hatches and keep on reading Paul’s astute analysis followed by our own interpretation of the 2013 threats to long term Capital Value and Economic Life. As far as human suffering is concerned, it has to be alleviated by our own Philanthropy and Social Enterprise because governments keep cutting the spending for the Third Sector willy nilly in their Austerity – bleed the patient dry – madness.
Paul Krugman : The Big Fail.
Sometimes good things happen to bad ideas…
Op-Ed piece published in NYT – January 9th 2013
” It’s that time again: the annual meeting of the American Economic Association and affiliates, a sort of medieval fair that serves as a marketplace for bodies (newly minted Ph.D.’s in search of jobs), books and ideas. And this year, as in past meetings, there is one theme dominating discussion: the ongoing economic crisis.
This isn’t how things were supposed to be. If you had polled the economists attending this meeting three years ago, most of them would surely have predicted that by now we’d be talking about how the great slump ended, not why it still continues.
So what went wrong? The answer, mainly, is the triumph of bad ideas.
It’s tempting to argue that the economic failures of recent years prove that economists don’t have the answers. But the truth is actually worse: in reality, standard economics offered good answers, but political leaders — and all too many economists — chose to forget or ignore what they should have known.
The story, at this point, is fairly straightforward. The financial crisis led, through several channels, to a sharp fall in private spending: residential investment plunged as the housing bubble burst; consumers began saving more as the illusory wealth created by the bubble vanished, while the mortgage debt remained. And this fall in private spending led, inevitably, to a global recession.
For an economy is not like a household. A family can decide to spend less and try to earn more. But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall — and unemployment will soar.
So what can be done? A smaller financial shock, like the dot-com bust at the end of the 1990s, can be met by cutting interest rates. But the crisis of 2008 was far bigger, and even cutting rates all the way to zero wasn’t nearly enough.
At that point governments needed to step in, spending to support their economies while the private sector regained its balance. And to some extent that did happen: revenue dropped sharply in the slump, but spending actually rose as programs like unemployment insurance expanded and temporary economic stimulus went into effect. Budget deficits rose, but this was actually a good thing, probably the most important reason we didn’t have a full replay of the Great Depression.
But it all went wrong in 2010. The crisis in Greece was taken, wrongly, as a sign that all governments had better slash spending and deficits right away. Austerity became the order of the day, and supposed experts who should have known better cheered the process on, while the warnings of some (but not enough) economists that austerity would derail recovery were ignored. For example, the president of the European Central Bank confidently asserted that “the idea that austerity measures could trigger stagnation is incorrect.”
Well, someone was incorrect, all right.
Of the papers presented at this meeting, probably the biggest flash came from one by Olivier Blanchard and Daniel Leigh of the International Monetary Fund. Formally, the paper represents the views only of the authors; but Mr. Blanchard, the I.M.F.’s chief economist, isn’t an ordinary researcher, and the paper has been widely taken as a sign that the fund has had a major rethinking of economic policy.
For what the paper concludes is not just that austerity has a depressing effect on weak economies, but that the adverse effect is much stronger than previously believed. The premature turn to austerity, it turns out, was a terrible mistake.
I’ve seen some reporting describing the paper as an admission from the I.M.F. that it doesn’t know what it’s doing. That misses the point; the fund was actually less enthusiastic about austerity than other major players. To the extent that it says it was wrong, it’s also saying that everyone else (except those skeptical economists) was even more wrong. And it deserves credit for being willing to rethink its position in the light of evidence.
The really bad news is how few other players are doing the same. European leaders, having created Depression-level suffering in debtor countries without restoring financial confidence, still insist that the answer is even more pain. The current British government, which killed a promising recovery by turning to austerity, completely refuses to consider the possibility that it made a mistake.
And here in America, Republicans insist that they’ll use a confrontation over the debt ceiling — a deeply illegitimate action in itself — to demand spending cuts that would drive us back into recession.
The truth is that we’ve just experienced a colossal failure of economic policy — and far too many of those responsible for that failure both retain power and refuse to learn from experience. __ ”
Lack of knowledgable Leadership is the problem.
Same as always has been…
Paul is crystal clear and certainly, the Saving Grace of Economic Thought today…
Only if Paul Krugman were to be listened to by the Lilliputs in charge of the world’s largest economic institutions, of the central Banks, and by those running the tandem bicycles of the economy, along with the errant Prime Ministers, Chancellors and Premieres…
We might have been already on the road to recovery and expansion.
Sadly he isn’t followed… His advise falls on deaf ears… His councel goes unheeded…
Thus we are in for some more pain.
Because as it stand our tandem bike we are all obliged to ride on and keep pedalling till Kingdom come…
resembles more a spinning wheel in a rat cage than a free economy.
Remember people: WE ARE NOT LAB RATS.
Stop experimenting on us with failed economic policies.
The treadmill for mice is not working anymore to produce juice for the economy.
Time to Change…
Lets’ alter course.
And let’s alter leadership – while we are at it.
We want new leaders. Smart – Cool – Collected and with basic macro-economic thinking.
Because with this lot we are being crucified and bled to death.
Enough Austerity experimentation you morons…
What’s next vivisection?
We are not Mice — We Roar.