Wednesday, July 29, 2015

Fear itself

Fear itself

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Following up on the last post, David Leonhardt of the New York Times is back today with an even-handed (seriously) look at the enormous gamble that's now being taken by most Western nations, with the United States not far behind. Leonhardt says the gamble could work (so could putting all of your chips on black...sometimes) but the risk is enormous:

The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.

In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.

On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.

I've always heard the definition of insanity is trying the same thing repeatedly and expecting a different outcome -- which would make our looming economic policy officially insane.

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Will Bunch
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