Tuesday, September 22, 2009

When, not if.

I wanted to apologize to readers for my silence and offer some explanation of why I have not been continuing with my post-crisis blogging. First of all I've been even busier than usual at my day job, doing science.

But second, I now feel that there is little real point in continuing (I will continue to blog, but less often on the crisis itself). This really is preaching to the converted. Most people in the econ blogosphere now agree - at least broadly - about the kinds of things that need to be done. Yet it has to be said that the vast eruption of post-crisis blogging, while intellectually stimulating, has politically been a failure. Most of our politicians seem unable to discern either the scale or nature of our problems, and many are, I think, simply intellectually corrupt. People are already suffering, but treat the crisis and its aftermath as a random event, akin to a weather calamity, rather than the consequence of repairable systemic flaws coupled with criminal behaviour on the part of an avaricious minority.

What is the end game here? My prediction is that we will (continue to) suffer considerable short-term economic fallout and (truly huge) longer-term social costs and missed opportunities. The systemic flaws will not be substantively addressed, and the actors involved not held responsible in any serious way. Moral hazard will grow, as it's now abundantly clear that not only is it permitted (if not encouraged) to be too big and/or interconnected too fail, but that even when you do fail there are essentially no consequences. There will be a second crisis, probably larger, whose timing will depend on precisely how little action is taken in the present.

But what is clear is that it's now a question of when, not if.