I post a lot of Paul Krugman's articles, mainly because he is one of the few economic commentators who is making any sense. His comments are based on a sound understanding of economic theory and a wide knowledge of economic history and the history of economic thought. I'd also mention that he is a winner of the Nobel Memorial Prize in Economics, except that given the statements of some of the past winners regarding our current situation, that's not much of a recommendation any more. Here's a blog post from today, which is interesting largely for its link to one post 16 months ago and a second post nearly two years ago.
Today's post is on the liquidity trap and the evidence that shows us we are in one. The post 16 months ago is a comment on a publication by Morgan Stanley back in November of 2009, when they predicted that the rising US Government deficit would cause interest rates to increase sharply by the end of 2010. Of course, this didn't happen--because we are in a liquidity trap, something many economists who ought to know better continue to either deny or act as if being in a liquidity trap doesn't have any implications for economic policy. With unemployment still near nine percent and output substantially below capacity, there are people who are still worried about government spending "crowding out" private spending.
In a second link in todays' blog, Krugman predicted this problem with understanding economic theory and its implications nearly two years ago. More than two wasted years of ignoring what economic theory told us about the recession and its effects. Our leaders are still having difficulty recognizing the problem and implementing a policy that will help us regain our economic footing. Two years from now, the finger pointing will be depressing.
Santayana was right: "Those who cannot learn from history are doomed to repeat it." But it's also true that those who don't understand the present can't be trusted to make policy.
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