Unknown unknowns

Kevin O'Rourke has a fascinating paper, picked up by Paul Krugman, matching the declines in asset values, international trade and so on in 1929/30 with those in the past two years. Kevin argues the graphs are nearly identical, and the only difference is the learning from the first time around, which means elites are not making it worse with self-defeating policies. The obvious question then is what new mistake are we making that we can't see because we are fixated on avoiding the Great Depression? The obvious answer is that the fiscal stimulus can have perverse effects by insuring against political risk and by creating the conditions for hyper-inflation. If the movement that designed the architecture which has failed to protect well-being doesn't have to pay a political price for that failure then the rest of us may be paying a huge price in public irrationality for a long time. Wanting to make the bankers suffer isn't populism, it is a realistic assessment that an immovable elite, with political protection, a credible claim to be immovable and a set of privileges is a nobility. Someone is going to bear the costs of adjustment and if the power-brokers of the recent past do not, then their positions will become even stronger, their privileges more entrenched and increasingly identified as the public good. This could get a lot worse.