Paul Krugman: “There don’t seem to be any major economic crises underway right this moment, and policy makers in many places are patting themselves on the back. We’re doing worse than anyone could have imagined a few years ago, yet people seem increasingly to be accepting this miserable situation as the new normal.”
How did this happen?
“I’d argue that an important source of failure was what I’ve taken to calling the timidity trap — the consistent tendency of policy makers who have the right ideas in principle to go for half-measures in practice, and the way this timidity ends up backfiring, politically and even economically.”
Fiscal policy has been underwhelming: “The classic example is the Obama stimulus, which was obviously underpowered given the economy’s dire straits.”
And monetary policy has also fallen short: “From the start, monetary officials ruled out the kinds of monetary policies most likely to work … As a result, the policies they have followed have fallen short of hopes, and ended up leaving the impression that nothing much can be done.”