Krugman: Cartoon Physics & The Great Abdication

Crossposted from The Stars Hollow Gazette

PBS Newshour

The Great Abdication

By PAUL KRUGMAN, The New York Times

Published: June 24, 2012

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?

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.

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.


    • RUKind on June 27, 2012 at 12:06 am

    We definitely had one of those world-wide in 2008. It’s not surprising that everyone got extremely  cautious at the same time. That was a very scary moment – we suddenly had no market confidence and were ready to take the plunge.

    Wile E. always gets in sky high shit because of reckless greed and never paying attention to where he is and the possible consequences. He just goes for it.

    The problem now is that the Fed hands out parachutes to the biggest players and lets everyone else do the splat.  That goes for countries – like Greece – as well as individuals and those corporations that fail to make the TBTF cut line.

    The only way out of this deficit mess is to pump the economy up from the middle and reduce the deficit as a percent of GDP. That way everyone benefits. Even the 1% gets more actual wealth if they give up some of their tax benefits. It’s a no-brainer.

    Increase the size of the pie for everyone, especially the middle class, and let the greed heads take a smaller percent but larger size portion. Why can’t they understand that?

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