Tuesday, October 14, 2014

What’s Really Killing the World Economy

Turns out forgiveness can be a virtue when it comes to easing hard economic times, as well as other areas of life.
The world economy is still stumbling, Paul Krugman writes in his column today. Recovery is stalling. “If this story sounds familiar, it should; it has played out repeatedly since 2008,” Krugman writes, somewhat depressingly. “As in previous episodes, the worst news is coming from Europe, but this time there is also a clear slowdown in emerging markets — and there are even  warning signs in the United States, despite pretty good job growth at the moment.”
Then he sets out to answer this question of why things areso bad. After all, we are many years past the housing bust and banking crisis, i.e., the causes of the Great Recession.
The sad truth is that the ongoing economic hardship around the word is and perhaps still is avoidable, in Krugman’s view. It is the result of a series of policy mistakes: “Austerity when economies needed stimulus, paranoia about inflation when the real risk is deflation, and so on.”
Next question, then, why do governments keep making these mistakes?
The answer, Krugman posits, is misplaced righteousness, overzealous moralizers intent on continuing to punish debtors even if doing so drags everyone down. Here is the background: Before the crash, credit was exploding. “Old notions of prudence, for both lenders and borrowers, were cast aside,” Krugman writes. “Debt levels that would once have been considered deeply unsound became the norm.

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