In his latest New York Times column, economist Paul Krugman takes on fear itself. More precisely, he argues against the conservative position -- a fear-mongering one that, of late, has named "economic policy uncertainty" as the administration's latest grave faux pas holding back the economy. The demand for policy confidence, argues Krugman, is just the latest theory that, in failing to see that we are simply looking at slow but expected recovery after a debt bubble burst, is in need of debunking:
[We] live in a golden age of economic debunkery. The doctrine of expansionary austerity collapsed as evidence on the actual effects of austerity came in, with officials at the International Monetary Fund even admitting that they had severely underestimated the harm austerity does. The debt-scare doctrine collapsed once independent economists reviewed the data. And now the policy-uncertainty claim has gone the same way.
Actually, this happened in two stages. Soon after it became famous, the proposed measure of uncertainty was shown to be almost comically flawed; for example, it relied in part on press mentions of “economic policy uncertainty,” which meant that the index automatically surged once that phrase became a Republican talking point. Then the index itself plunged, back to levels not seen since 2008, but the economy didn’t take off. It turns out that uncertainty wasn’t the problem.
The truth is that we understand perfectly well why recovery has been slow, and confidence has nothing to do with it. What we’re looking at, instead, is the normal aftermath of a debt-fueled asset bubble
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