[Emphasis mine.]
The year 2015 was a hard one all around. Brazil fell into recession. China’s economy experienced its first serious bumps after almost four decades of breakneck growth. The eurozone managed to avoid a meltdown over Greece, but its near-stagnation has continued, contributing to what surely will be viewed as a lost decade. For the United States, 2015 was supposed to be the year that finally closed the book on the Great Recession that began back in 2008; instead, the U.S. recovery has been middling.
Indeed, Christine Lagarde, managing director of the International Monetary Fund, has declared the current state of the global economy the “new mediocre.” Others, harking back to the profound pessimism after the end of World War II, fear that the global economy could slip into depression, or at least into prolonged stagnation.
In early 2010, I warned in my book “Freefall,” which describes the events leading up to the Great Recession, that without the appropriate responses, the world risked sliding into what I called a “Great Malaise.” Unfortunately, I was right: We didn’t do what was needed, and we have ended up precisely where I feared we would.
[…]
The only cure for the world’s malaise is an increase in aggregate demand. Far-reaching redistribution of income would help, as would deep reform of our financial system – not just to prevent it from imposing harm on the rest of us, but also to get banks and other financial institutions to do what they are supposed to do: match long-term savings to long-term investment needs.
[…]
But some of the world’s most important problems will require government investment. Such outlays are needed in infrastructure, education, technology, the environment and facilitating the structural transformations that are needed in every corner of the earth.
The obstacles the global economy faces are not rooted in economics, but in politics and ideology.
[…]
That means overcoming deficit fetishism. It makes sense for countries like the U.S. and Germany that can borrow at negative real long-term interest rates to borrow to make the investments that are needed.
[…]
Optimists say 2016 will be better than 2015. That may turn out to be true, but only imperceptibly so. Unless we address the problem of insufficient global aggregate demand, the Great Malaise will continue.
Welcome to the new mediocre, as Christine Lagarde has called it.
via Brad DeLong
from Stowe Boyd http://stoweboyd.com/post/137018518327
