Paul Krugman: Who’ll Stop the Pain?

[girl gone mad]

http://economistsview.typepad.com/economistsview/

Who’ll Stop the Pain?, by Paul Krugman, Commentary, NY Times:

Earlier this week, the Federal Reserve released the minutes of the most recent meeting of its open market committee... Most press reports focused either on the Fed’s downgrade of the near-term outlook or on its adoption of a long-run 2 percent inflation target.

But my eye was caught by the following chilling passage...: “All participants anticipated that unemployment would remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks; a few indicated that more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates of output growth and unemployment and by an appropriate rate of inflation.”

So people at the Fed are troubled by the same question I’ve been obsessing on lately: What’s supposed to end this slump? No doubt this, too, shall pass — but how, and when?

To appreciate the problem, you need to know ... we’re in the midst of a crisis that bears an eerie, troubling resemblance to the onset of the Depression; interest rates are already near zero, and still the economy plunges. How and when will it all end?

To be sure, the Obama administration is taking action to help the economy, but it’s trying to mitigate the slump, not end it. The stimulus bill, on the administration’s own estimates, will limit the rise in unemployment but fall far short of restoring full employment. The housing plan announced this week ... will help many homeowners, but it won’t spur a new housing boom.

What, then, will actually end the slump?

Well, the Great Depression did eventually come to an end, but that was thanks to an enormous war, something we’d rather not emulate. The slump that followed Japan’s “bubble economy” also eventually ended, but only after a lost decade. And when Japan finally did start to experience some solid growth, it was thanks to an export boom,... not an experience anyone can repeat when the whole world is in a slump.

So will our slump go on forever? No. In fact, the seeds of eventual recovery are already being planted.

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[GliderGuider]

1. The plain fact is that the global economy has been ion trouble for well over 100 years

We're clever, though, and we've been able to find more and more sophisticated ways of hiding that fact.

Economies based on perpetual growth inevitably fail. There is no way around that simple ecological fact.

Krugman's comment about inevitable recovery simply demonstrates his utter blindness.

[HamdenRice]

4. "trouble for well over 100 years"

That's like saying that an asteroid is going to destroy civilization any day now, any day now, any day -- and if it strikes in 2021 you can say, "I predicted it."

The economy has had ups and downs for the last 100 years. Tremendous increases in the standard of living and quality of life have been achieved over the last 100 years. It has not been a consistent path toward disaster.

[GliderGuider]

6. No.

It's like saying, "The asteroid that is going to strike us later this year has been on a path toward the Earth for the last thousand years." There's no prediction involved, just a careful backtracking of the trajectory and a knowledge of the laws governing it.

The evidence that we have been on a failure path since at least the crash of 1873 is precisely the "tremendous increases in the standard of living and quality of life" you trumpet as evidence of victory. They are in fact the harbingers of our defeat. As with the hypothetical asteroid no prediction is necessary, just a plot of our trajectory to this point.

[HamdenRice]

7. Okey Dokey

If you would rather go back to the pre-New Deal, pre public health, pre adequate nutrition society of the 1870s, be my guest.

But while everyone is entitled to their own opinions, everyone is not entitled to their own facts.

[GliderGuider]

8. Who said anything about going back there?

I merely said the roots of the current crisis were back there. Why should we want to go back to those roots? Human development is a one-way function, but that doesn't mean we shouldn't try to understand how our current situation arose.

[Terry in Austin]

9. Correct. It's not a matter "going back"

It's more like "picking up where we left off."

[wuvuj]

2. Don't expect those in "control" to...

...be honest about what they really see? Unless you DO read the FINE PRINT? They tend to ALWAYS talk things up....can't panic the herd you know.

[izquierdista]

3. I want to see Obama's energy policy implemented

Making the U.S. independent of imported fossil fuels would require a BIG investment in solar, wind, biomass, and bring the economy around.

[HamdenRice]

5. A concerted global investment in green energy is probably the answer

It would be a world war II scale mobilization of resources to adopt some new form(s) of energy, to reduce global warming, and to improve living standards in the poorer regions without increasing their carbon/environmental footprint.

That effort, which would add a billion more producers/consumers from out of the dollar a day global poverty class would do the trick.