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Friday, January 31, 2014

Paul Krugman: Talking Troubled Turkey

Do "we now have a world economy destined to seesaw between bubbles and depression"?:

Talking Troubled Turkey, by Paul Krugman, Commentary, NY Times: O.K., who ordered that? With everything else going on, the last thing we needed was a new economic crisis in a country already racked by political turmoil. True, the direct global spillovers from Turkey, with its Los Angeles-sized economy, won’t be large. But we’re hearing that dreaded word “contagion”...
It is, in many ways, a familiar story. But that’s part of what makes it so disturbing: Why do we keep having these crises? And here’s the thing: The intervals between crises seem to be getting shorter, and the fallout from each crisis seems to be worse than the last. What’s going on?...
You may or may not have heard that there’s a big debate among economists about whether we face "secular stagnation"..., a situation in which the amount people want to save exceeds the volume of investments worth making.
When that’s true, you have one of two outcomes. If investors are being cautious and prudent, we are collectively, in effect, trying to spend less than our income,... the result is a persistent slump.
Alternatively, flailing investors — frustrated by low returns and desperate for yield — can delude themselves, pouring money into ill-conceived projects, be they subprime lending or capital flows to emerging markets. This can boost the economy for a while, but eventually investors face reality, the money dries up and pain follows.
If this is a good description of our situation, and I believe it is, we now have a world economy destined to seesaw between bubbles and depression. ...
The larger point is that Turkey isn’t really the problem; neither are South Africa, Russia, Hungary, India, and whoever else is getting hit right now. The real problem is that the world’s wealthy economies — the United States, the euro area... — have failed to deal with their own underlying weaknesses. Most obviously, faced with a private sector that wants to save too much and invest too little, we have pursued austerity policies that deepen the forces of depression. Worse yet, all indications are that, by allowing unemployment to fester, we’re depressing our long-run as well as short-run growth prospects, which will depress private investment even more. ...
So Turkey seems to be in serious trouble — and China, a vastly bigger player, is looking a bit shaky, too. But what makes these troubles scary is the underlying weakness of Western economies, a weakness made much worse by really, really bad policies.

    Posted by on Friday, January 31, 2014 at 12:24 AM in Economics, International Finance | Permalink  Comments (61)

          


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