As I have been writing a lot lately, the clean little secret of the global economic crisis is that standard economic theory actually performed pretty well.
It’s true that few anticipated the severity of the 2008 crisis — but that wasn’t a deep failure of theory, it was a failure of observation. We actually had a pretty good understanding of bank runs; we just failed to notice that traditional banks were a much smaller share of the system than before, and that unregulated, unguaranteed shadow banks had become so important. Once that realization hit, as the economist Gary Gorton has documented, standard bank-run theory made perfectly good sense of the story.
And the aftermath of the crisis — persistent low interest rates despite high deficits, impotence of monetary policy, major negative impacts of fiscal austerity — may not have been what most economists or government agencies predicted, but it’s what they should have predicted. As I often point out, Macroeconomics 101 has worked pretty well.
The point is that radical new theories haven’t been needed at all, since off-the-shelf economics tools we already had, provided plenty of guidance.
In that case, however, why are we doing so badly? And I mean really badly.
In Europe, recovery is now behind where it was at the same point during the Great Depression. See the chart on European industrial production from the League of Nations starting in 1929, and Eurostat starting in 2007.
The immediate answer is bad policy — above all, fiscal austerity in the face of mass unemployment, which is exactly what everything we know about macroeconomics says we should not be doing.
Some of these choices reflected the problems of the monetary union in Europe — but there has been a lot of austerity, even in Europe’s core nations.
And underlying it all was the absolute determination of officials to throw out everything we had learned about macroeconomic policy in depressions and go with their prejudices instead.
Of course, they found prominent economists — like Alberto Alesina, Carmen Reinhart and Kenneth Rogoff — who told them what they wanted to hear. But there were plenty of prominent economists desperately warning that they were wrong; it was the policy makers and the Very Serious People in general who decided who they would regard as serious and worth listening to — leading to what now look like comical mistakes.
But it’s no joke; it’s a terrible tale of folly and disaster.
Help us Prepare for Trump’s Day One
Trump is busy getting ready for Day One of his presidency – but so is Truthout.
Trump has made it no secret that he is planning a demolition-style attack on both specific communities and democracy as a whole, beginning on his first day in office. With over 25 executive orders and directives queued up for January 20, he’s promised to “launch the largest deportation program in American history,” roll back anti-discrimination protections for transgender students, and implement a “drill, drill, drill” approach to ramp up oil and gas extraction.
Organizations like Truthout are also being threatened by legislation like HR 9495, the “nonprofit killer bill” that would allow the Treasury Secretary to declare any nonprofit a “terrorist-supporting organization” and strip its tax-exempt status without due process. Progressive media like Truthout that has courageously focused on reporting on Israel’s genocide in Gaza are in the bill’s crosshairs.
As journalists, we have a responsibility to look at hard realities and communicate them to you. We hope that you, like us, can use this information to prepare for what’s to come.
And if you feel uncertain about what to do in the face of a second Trump administration, we invite you to be an indispensable part of Truthout’s preparations.
In addition to covering the widespread onslaught of draconian policy, we’re shoring up our resources for what might come next for progressive media: bad-faith lawsuits from far-right ghouls, legislation that seeks to strip us of our ability to receive tax-deductible donations, and further throttling of our reach on social media platforms owned by Trump’s sycophants.
We’re preparing right now for Trump’s Day One: building a brave coalition of movement media; reaching out to the activists, academics, and thinkers we trust to shine a light on the inner workings of authoritarianism; and planning to use journalism as a tool to equip movements to protect the people, lands, and principles most vulnerable to Trump’s destruction.
We urgently need your help to prepare. As you know, our December fundraiser is our most important of the year and will determine the scale of work we’ll be able to do in 2025. We’ve set two goals: to raise $100,000 in one-time donations and to add 1300 new monthly donors by midnight on December 31.
Today, we’re asking all of our readers to start a monthly donation or make a one-time donation – as a commitment to stand with us on day one of Trump’s presidency, and every day after that, as we produce journalism that combats authoritarianism, censorship, injustice, and misinformation. You’re an essential part of our future – please join the movement by making a tax-deductible donation today.
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