Thursday, May 3, 2012

Broken Promises

Another great thought provoking link c/o Marginal Revolution:
The industrial countries have a choice. They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called “animal spirits” must be revived through stimulus measures. Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities. For better or worse, the narrative that persuades these countries’ governments and publics will determine their futures—and that of the global economy.
I don't understand how anyone who has studies the causes of the crisis can believe that our current situation is the result of Keynes' "animal spirits." We've made too many promises that we can't possibly keep - whether in the form of credit default swaps, Medicare, mortgages or pensions the story is fundamentally the same. How and when these promises get broken will be one of the biggest issues over the coming decades.

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