HomeOther WritingsA Permanent Slump? – Paul Krugman – NYTimes.com

A Permanent Slump? – Paul Krugman – NYTimes.com

Paul Krugman (and Larry Summers) peer behind the backdrop and see the postnormal economy may be with us for decades.

excerpt

what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?

You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.

And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.

Mr. Summers began with a point that should be obvious but is often missed: The financial crisis that started the Great Recession is now far behind us. Indeed, by most measures it ended more than four years ago. Yet our economy remains depressed.

He then made a related point: Before the crisis we had a huge housing and debt bubble. Yet even with this huge bubble boosting spending, the overall economy was only so-so — the job market was O.K. but not great, and the boom was never powerful enough to produce significant inflationary pressure.

Mr. Summers went on to draw a remarkable moral: We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles.

The postnormal is a post-growth economy smashing into the face of a society that is based on persistent growth. As the population explosion slows, we now need to make the difficult transition to a post-growth model of human existence, and financial and monetary policies to match. I’m betting that will take decades, and a great deal of difficulty.

As I wrote earlier this year, 

The economist Noriel Roubini wrote an important essay recently, along with political scientist Ian Bremmer, describing

Paul Krugman (and Larry Summers) peer behind the backdrop and see the postnormal economy may be with us for decades.

excerpt

[…] what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?

You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.

And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.

Mr. Summers began with a point that should be obvious but is often missed: The financial crisis that started the Great Recession is now far behind us. Indeed, by most measures it ended more than four years ago. Yet our economy remains depressed.

He then made a related point: Before the crisis we had a huge housing and debt bubble. Yet even with this huge bubble boosting spending, the overall economy was only so-so — the job market was O.K. but not great, and the boom was never powerful enough to produce significant inflationary pressure.

Mr. Summers went on to draw a remarkable moral: We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles.

The postnormal is a post-growth economy smashing into the face of a society that is based on persistent growth. As the population explosion slows, we now need to make the difficult transition to a post-growth model of human existence, and financial and monetary policies to match. I’m betting that will take decades, and a great deal of difficulty.

As I wrote earlier this year,

The economist Noriel Roubini wrote an important essay recently, along with political scientist Ian Bremmer, describing the “new abnormal” as a system operating on the basis of an “unstable disequilibrium,” while the earlier “new normal” presupposed the world economy was merely a transitory “unstable equilibrium.”

The takeaway is we’re now in a time of overwhelming volatility, uncertainty, complexity, and ambiguity, where forecasting becomes nearly impossible, and even determining which of the risks confronting us are most significant is almost unimaginable. This near blindness confronts governments, global businesses, the local bank, the entrepreneur, and every person on Earth. We are driving a car whose engineering is unknown (and rapidly evolving, in real time, under the hood), a car that is inexorably speeding up, with only one flickering headlight, and no brakes, on a road headed to who knows where.

I will leave aside any speculation of what might be done to slow the car, fix the headlights, or get the brakes working. That’s a discussion for something grander than this foreword. But this stark context for our world hangs over us like a threatening cloud, darkening every action we take.

the “new abnormal” as a system operating on the basis of an “unstable disequilibrium,” while the earlier “new normal” presupposed the world economy was merely a transitory “unstable equilibrium.”

The takeaway is we’re now in a time of overwhelming volatility, uncertainty, complexity, and ambiguity, where forecasting becomes nearly impossible, and even determining which of the risks confronting us are most significant is almost unimaginable. This near blindness confronts governments, global businesses, the local bank, the entrepreneur, and every person on Earth. We are driving a car whose engineering is unknown (and rapidly evolving, in real time, under the hood), a car that is inexorably speeding up, with only one flickering headlight, and no brakes, on a road headed to who knows where.

I will leave aside any speculation of what might be done to slow the car, fix the headlights, or get the brakes working. That’s a discussion for something grander than this foreword. But this stark context for our world hangs over us like a threatening cloud, darkening every action we take.

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