Defeatism:
Martin Wolf is getting frantic, as well he should. The austerians have
brought us to the brink of a vast disaster. A recession in Europe looks
more likely than not; and the question for the United States is not
whether a lost decade is possible, but whether there is any plausible
way to avoid one. Wolf directs us to a recent speech by Adam Posen
(pdf), which opens with a passage that very much mirrors my own
thoughts:
Both the UK and the global economy are facing a familiar foe at
present: policy defeatism. Throughout modern economic history, whether
in Western Europe in the 1920s, in the US and elsewhere in the 1930s, or
in Japan in the 1990s, every major financial crisis-driven downturn has
been followed by premature abandonment—if not reversal—of the
macroeconomic stimulus policies that are necessary to sustained
recovery. Every time, this was due to unduly influential voices claiming
some combination of the destructiveness of further policy stimulus, the
ineffectiveness of further policy stimulus, or the political corruption
from further policy stimulus. Every time those voices were wrong on
each and every count. Those voices are being heard again today, much too
loudly. It is the duty of economic policymakers including central
bankers to rebut these false claims head on. It is even more important
that we do the right thing for the economy rather than be slowed,
confused, or intimidated by such false claims.
Indeed. Posen’s “unduly influential voices” are my Very Serious
People. And it has been an awesome spectacle watching the VSPs search,
obsessively, for reasons not to fight mass unemployment. Fiscal policy
must tighten to appease the invisible bond vigilantes and please the
confidence fairy. Interest rates must rise because, well, um, inflation,
well, no, low rates cause moral hazard — yes, that must be it.
And we’re not (just) talking about ignorant politicians. This stuff
has been coming from the European Central Bank, the Organization for
Economic Cooperation and Development, the Bank for International
Settlements. I don’t fully understand it. But a large part of it, it
seems obvious, is the intense desire to see economics as a morality play
of sin and punishment, where the sinners are, of course, workers and
governments, not the bankers. Pain is not an unfortunate consequence of
policies, it’s what is supposed to happen. How obsessive are these
people? So obsessive that when the financial doom they predict fails to
materialize, they consider this a bad thing: punishment must be
administered, so what are the markets waiting for?
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