Friday, June 03, 2011

Headed in the Wrong Direction

On the day that the U.S unemployment rate went up for the second month in a row, Paul Krugman wrote that: "To be sure, things could be worse — and there’s a strong chance that they will, indeed, get worse." History is repeating itself. Unfortunately, The Great Depression occurred eighty years ago, and today's politicians have no long term memories and very short attention spans:

Somehow it became conventional wisdom that the deficit, not unemployment, was Public Enemy No. 1 — a conventional wisdom both reflected in and reinforced by a dramatic shift in news coverage away from unemployment and toward deficit concerns. Job creation effectively dropped off the agenda.

Krugman warned back in 2008 that the stimulus package was too small and too short lived. His opinion was considered too radical by those who supposedly knew better. Those who "knew better" had not just found a home in Washington. They were also ensconced in Europe. The same economic stagnation has been occurring there for sometime.

If there is one consistent reaction from those in power, it is what the American historian Barbara Tuchman has called "wooden-headedness" -- which inevitably leads to folly. Tuchman wrote that foolish policy is marked by three identifying characteristics. It

1) “must have been perceived as counter-productive in its own time, not merely by hindsight;” 2) “a feasible alternative course of action must have been available,” and; 3) that alternative must have been in existence beyond the life of a single individual and recommended over time by significant political opposition.

Krugman and other economists like Robert Reich and Joseph Stiglitz warned that the response in 2008 was an example of folly. Time has proved them right. The question is: Is anybody listening?

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