The Downgrade Doom LoopThe problem with being on a ship where the captain has gone mad is that there is no way off. I'm being hauled along over the precipice of "austerity" as the fools who govern don't know enough economics to do their job and/or won't attend to what honest economists will tell them. They prefer their in-house "economists" who are political flaks and not real economists. We are all doomed!
It’s not the whole story, but something like this threatens to develop:
1. US debt is downgraded, sparking demands for more ill-advised fiscal austerity
2. Fears that this austerity will depress the economy send stocks down
3. Politicians and pundits declare that worries about US solvency are the culprit, even though interest rates have actually plunged
4. This leads to calls for even more ill-advised austerity, which sends us back to #2
Behold the power of a stupid narrative, which seems impervious to evidence.
Monday, August 8, 2011
Politicians Don't Understand Positive Feedback
Here is a post by Paul Krugman on his NY Times blog pointing out that the road the politicians are heading is one with positive feedback consequences: