"Unless something big and constructive in the way of global economic policy is done soon....Future economic historians may not call the period that began in 2007 the "Greatest Depression." But as of now, it is highly and increasingly probable that they will call it the "Longest Depression."
So what can be done?
The first task will be one of education. We will be unable to reliably adopt good policies and unable to sustain them (if we do by accident adopt them) unless we understand our situation. Thus everybody needs to read, think about and teach the lessons of two of the very best books of the past two years: Martin Wolf's "The Shifts and the Shocks" and Barry Eichengreen's "Hall of Mirrors."
The three-sentence elevator version of Eichengreen is: We remembered barely enough of the lessons of the Great Depression to avoid its recurrence. But then the fact that we did not have a Great Depression removed the spur that would have pushed us to relearn the lessons we had forgotten and to then apply them. Thus we are now trapped in Stiglitz's Great Malaise.
The three-sentence elevator version of Wolf is: Stability begat complacency, complacency begat carelessness and hence fragility and fragility set the stage for crisis.
What we need now is debt relief and much tighter financial regulation.
What we need now is 1) debt relief to unwind the overhang and 2) much tighter financial regulation to prevent the growth of new fragilities. And if those prove inconsistent with full recovery, then we need massive government spending on infrastructure and other investments financed by money printing until full employment is reattained.
The second task will be one of political organization. For until politicians, finance ministry technocrats and central bankers feel under pressure to respond to and in fact internalize the diagnoses of Stiglitz, Eichengreen, Wolf and others, our problems will remain, as Stiglitz puts it, "not rooted in economics, but in politics and ideology."
And it is only after those ideological and political blockages have been removed that the tasks of economic policy -- and then of shifting policy to deal with the new problems that arise as consequences of fixing our current economic policies -- can be seriously begun."