I had one major source of unhappiness with last week’s conference: the participants were largely silent about the dismal outlook in the advanced economies for the next several years. The current outlook for unemployment in the United States, Europe, and Japan is probably worse than it was in late 2008. Then, mainstream forecasts for 2009–2011 showed unemployment rising sharply—but generally to levels below what we are experiencing today—and then returning toward normal at a moderate pace. Today, not only is unemployment higher than most 2008 forecasts of its peak levels, but the expected pace of recovery is weaker.
Despite this deterioration, the dire sense of urgency in late 2008 has not increased. Indeed, it has largely disappeared. I find this complacency in the fact of vast, preventable suffering and waste hard to understand.
And he has every right to. Although Krugman gave some very good explanations, and that unemployment is not getting worse (it is just not getting better), I agree with Romer that the silence won’t help our current economic situation and us moving toward Blanchard’s Brave New World.
Fact is, during this crisis (it is still going on), we have no equivalent of Keyne, and there is no Keynesian revolution. All we have are some guerilla efforts, albeit forceful, from the likes of Joe Stiglitz, Paul Krugman, Brad Delong, Barry Eichengreen etc. Their view, for whatever reason, never take hold at the policy level with the Very Serious People, EU is a case in point. Politically speaking, the Keynesians have become irrelevant.
Even though we understand that the economics of the Great Moderation is wrong and it had led us into this horrible place, the world and the politics are still going as if that didn’t happen. In this world, the battle is waged at multiple fronts, climate change, health care, social security, you name it (with the exception of China perhaps), and the Keynesians are not getting the upper hand and leading the narrative.
I will venture a guess here. One major difference between today’s crisis and the Great Depression is that people are covered by the Keynesian safety net. It is easy for people to forget the lessons when they do not experience the pain. That’s why we see people receiving government sponsored health care in the US go against health care reform.
That’s why economists with a conscience have to be vocal and need to transmit their idea effectively to the public. It is futile trying to sell a policy, however objectively good it is, when the majority of public don’t believe in it. That said, winning hearts and minds is always difficult, but being silent won’t help.