Good (if somewhat wonkish) post from “A Fistful of Euros” on the trouble with purely monetary analysis of the current credit crisis, its causes, and its prognosis.
Has anyone else noticed that the current crisis sheds light on one of the great controversies of economic history?” Paul Krugman asked his readers back in Novermber last year. In fact on reading this I felt immediately filled with the urge to stand on my chair and shout out loud across the Atlantic to him “Hi Prof, yes me”, since – to plagiarize a phrase from Robert Lucas – scarcely a day has passed since the 9 August 2007 (the day PNB Paribas found themselves short of $2 billion dollars to “close” their books) when I have not been thinking about this. In fact, despite the many bad things that can obviously be said about the present crisis, it does have one saving virtue – it enables many of us economists to get “close up and personal” and take a ringside seat and really see for ourselves, and at first hand, just how things may actually have worked back then. In this sense I would like to extend my profound thanks and deep gratitude to each and everyone of the 45 million Spanish men and women and the 140 million odd Russians who are idling away their time at the moment running round and round the treadmill, all in the cause of helping me triangulate, and sort out a few nagging questions that have been haunting me ever since my late adolescence.
Read the whole thing.