Oh Heck
by digby
Krugman:
For some reason today’s papers made me feel especially grim about the prospects for economic recovery — not the economic news so much as what one sees about the mindset of policy makers.
Here’s where we are: growing GDP, but mass unemployment still the law of the land, with only tiny progress so far. What can be done?
Well, we could have more fiscal stimulus — but Congress is balking even at the idea of extending aid for the ever-growing ranks of the long-term unemployed. Fiscal responsibility, you see — hey, and let’s make sure estate taxes stay low!
We could get tough with China, which continues its currency manipulation and, in the face of a world of grossly inadequate demand, is actually tightening monetary policy to avoid an overheating economy — when basic textbook economics says that it should be appreciating its currency instead, which would not only rebalance China’s economy but help the rest of the world. So given China’s outrageous behavior, Geithner went to China, got nothing .. and pronounced himself very pleased.
We could do more through monetary policy. Macro theory suggests that the theoretically right answer, if you can do it, is to get central banks to commit to a higher inflation target. But the Fed and the Bank of Japan say no, because … well, that’s not what central bankers do.
It’s depressing: shibboleths and conventional wisdom are blocking all routes out of this slump. And I worry that policy makers will just sit there, for years and years, all the while congratulating themselves on the soundness of their policies.
I agree with everyone who blames the essential corruption of our political system. Big money is a poison in our system. But there is also a generalized failure to challenge conventional wisdom, born of a hidebound, ruling elite that reinforces and recycles itself. Regulatory capture is far more problematic than just the professional revolving door --- it's a self-reinforcing social culture. It's the "very serious people" syndrome and it's failing this country badly.
Update: Krugman has more today:
What’s so scary about this is that the OECD virtually defines conventional wisdom; it’s a numbered-paragraph sort of place, where a committee has to sign off on everything, policing the nuances as they say. So what we get from this is that among sensible people the idea that you should undermine recovery to appease those who think there might be inflation even though actually there isn’t has become conventional wisdom — so conventional that it’s treated as self-evident.
This is really, really bad.