Saturday, November 27, 2010

Liquidate me! (again)

Brad DeLong is also puzzling over this. Why, if we understand more about how the economy works than in 1931, and if investors have more to lose from a slump than in 1931, and more workers have the vote than in 1931, we are still heading the same way we headed back in... you get the idea.

Two basic components to the answer. 1. Economists (or at least some of them) may have figured out what a slump entails and how to deal with it, but the vast majority of citizens don't have a clue what's going on. There is an intellectual deficit extending to a wide range of opinion leaders, never mind of ordinary folks who have never heard of Keynes. So, when someone comes along and tells you that it is wrong to print money because it causes inflation, look at Zimbabwe, then you have no defences.

2. The second part of the story is that the victims of all this may have the vote, but they are not mobilized and do not know what to do with it. There is no anti-liquidationist political party (although maybe Ed Miliband is planning one, we'll see), there are weak trade unions, and, compared with the 30s, there are less victims of the slump. After all, we all still have mobile phones and something to eat.

In a world of relative material comfort (compared with 1931, and indeed most of the rest of the world now), with a rich elite willing to take a shot at rolling back the welfare state, and an ill-informed, disorganized citizenry, it's not so hard to understand why all this is happening.