The IMF recently released a report warning that the world economy is once again tipping towards recession. Why? Paul Krugman writes in today's New York Times:
The proximate answer lies in a series of policy mistakes: Austerity when economies needed stimulus, paranoia about inflation when the real risk is deflation, and so on. But why do governments keep making these mistakes? In particular, why do they keep making the same mistakes, year after year?
The answer, I’d suggest, is an excess of virtue. Righteousness is killing the world economy.
The righteous believe that ordinary folks -- who are drowning in debt -- will have to pay for their sins. They also believe that those who led them there bear no responsibility for the mess they helped create. Put simply, the righteous believe in punishment, but not forgiveness:
As I said, it’s about righteousness — the sense that any kind of debt forgiveness would involve rewarding bad behavior. In America, the famous Rick Santelli rant that gave birth to the Tea Party wasn’t about taxes or spending — it was a furious denunciation of proposals to help troubled homeowners. In Europe, austerity policies have been driven less by economic analysis than by Germany’s moral indignation over the notion that irresponsible borrowers might not face the full consequences of their actions.So the policy response to a crisis of excessive debt has, in effect, been a demand that debtors pay off their debts in full. What does history say about that strategy? That’s easy: It doesn’t work. Whatever progress debtors make through suffering and saving is more than offset through depression and deflation. That is, for example, what happened to Britain after World War I, when it tried to pay off its debt with huge budget surpluses while returning to the gold standard: Despite years of sacrifice, it made almost no progress in bringing down the ratio of debt to G.D.P.
It's obvious where the Harperites stand. Whether it's the economy, or justice, or international affairs, they stand four square for punishment. God, you see, is on their side.