Excerpt: "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."
Portrait, New York Times columnist Paul Krugman, 06/15/09. (photo: Fred R. Conrad/NYT)
The Great Abdication
25 June 12
mong economists who know their history, the mere mention of certain years evokes shivers. For example, three years ago Christina Romer, then the head of President Obama's Council of Economic Advisers, warned politicians not to re-enact 1937 - the year F.D.R. shifted, far too soon, from fiscal stimulus to austerity, plunging the recovering economy back into recession. Unfortunately, this advice was ignored.
But now I'm hearing more and more about an even more fateful year. Suddenly normally calm economists are talking about 1931, the year everything fell apart.
It started with a banking crisis in a small European country (Austria). Austria tried to step in with a bank rescue - but the spiraling cost of the rescue put the government's own solvency in doubt. Austria's troubles shouldn't have been big enough to have large effects on the world economy, but in practice they created a panic that spread around the world. Sound familiar?
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