Monday, June 25, 2012

The Great Dithering: The Economy

Paul Krugman has issued yet another warning about the U.S. and indeed the global economy, only this one is less about what we should do (and could easily do) to jumpstart growth than about the consequences of not doing that, which could be quickly severe in the extreme--not 1937, when FDR listened to the austerity hawks and lessened federal stimulus which reignited the Depression, but 1931, and a series of indecisions that led to the global economic collapse of the Great Depression.

The occasion for this is the Fed's decision last week to do the absolute minimum that prevents people from saying they did nothing (to paraphrase Krugman) when it could have done more to get the economy moving.  His conclusion:  

Why won’t the Fed act? My guess is that it’s intimidated by those Congressional Republicans, that’s it’s afraid to do anything that might be seen as providing political aid to President Obama, that is, anything that might help the economy. Maybe there’s some other explanation, but the fact is that the Fed, like the European Central Bank, like the U.S. Congress, like the government of Germany, has decided that avoiding economic disaster is somebody else’s responsibility.
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."

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