The Elites Party Like It’s 1931
A few weeks back, the respected Martin Wolf wrote an op-ed for the Financial Times in which he lamented the inability of Europe’s elites to stop an inexorable collapse of the Euro monetary union.
There had/have been many similar articles by various observers before and since — you can find others in today’s news — but this one was widely noted not only because it was Martin Wolf saying it, but because of how he said it. Addressing the growing Euro/bank runs in Greece and Spain, he wrote “panic has become all too rational.”
Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish. But investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it.
In the eurozone, they are failing to do so. If those with good credit refuse to support those under pressure, when the latter cannot save themselves, the system will surely perish. Nobody knows what damage this would do to the world economy. But who wants to find out?
Today’s Paul Krugman column, The Great Abdication, picks up on the same theme, noting how many economists are now looking to the 1930s for parallels to describe the inability of political and financial elites to stop an impending train wreck or at least get their nations safely out of the way.
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.. . .
The really crucial lesson of 1931, however, was about the dangers of policy abdication. Stronger European governments could have helped Austria manage its problems. Central banks, notably the Bank of France and the Federal Reserve, could have done much more to limit the damage. But nobody with the power to contain the crisis stepped up to the plate; everyone who could and should have acted declared that it was someone else’s responsibility.
And it’s happening again, both in Europe and in America. . . .
. . . 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.
He’s not alone in feeling this way. If you’ve been reading the anguished evolution of folks like Brad DeLong, a self-described “technocrat” and once believing economist who labored in the Clinton Administration and now teaches macroeconomic history at Berkeley, you’ll notice a relentless decline of hope and optimism and its replacement by hair-pulling dismay and disillusionment. There are many examples, but a frequent DeLong post at Grasping Reality will begin with something like, “If you had told me __ years ago, that [unemployment, or fill in the blank] would still be this bad but that [Ben Bernanke and Tim Geithner — or fill in the blanks] would be doing nothing about it, I would not have believed you.”
The point is, these near panic views are not from those the media might call radical leftists. I didn’t even include Dr. Doom or the MMT folks.
In a very worthwhile review of several books in the New York Review of Books, economist Robin Wells and husband Krugman examine in Getting Away With It how we got to this point and whether we can escape history. Krugman, DeLong, Mann/Ornstein in It’s Even Worse than it Looks (h/t Mark Thoma) and many others have argued vehemently about the radicalization of the Republican Party and how it’s destructive behavior is crippling the ability of the nation to address its problems. But Wells/Krugman do not leave it there. Their closing is not hopeful:
And where, in all this, is the hope that was so widespread back in 2008? It is, frankly, hard to find. President Obama bears some of the blame for that; he chose to listen to the wrong people, and arguably missed his best chance to turn the economy around. (Just to be clear, this isn’t a suggestion that Mitt Romney would do better. On the contrary, Romney is deeply committed to the false Republican narrative about what ails our economy, and all indications are that if he wins, he will make a bad situation much, much worse.) But ultimately the deep problem isn’t about personalities or individual leadership, it’s about the nation as a whole. Something has gone very wrong with America, not just its economy, but its ability to function as a democratic nation. And it’s hard to see when or how that wrongness will get fixed.
This seems like it should be the story of the decade. But you’d be hard pressed to find sentiments like these discussed on any of the Sunday talking head shows, where the main topic this week was whether the Justice Department is selling guns to drug lords in a conspiracy to take your guns away.