Evan Soltas points out what seems to me to be a fact that's been blatantly obvious for years now: that we are faced with an aggregate demand shortfall. He invests a lot in this:
"This question [what caused the recession of 2008] means a lot to me, and (I think) in a unique sort of way.
I became interested in economics during, even because of, the 2008
recession. It has shaped how I think about economics, as I imagine it
has for much of my generation, in a way for which the only historical
precedent seems to be the wave of Keynesian economists forged by the
Great Depression who swept academic and policy circles in the 1940s,
50s, and 60s.
So what caused the recession of 2008? A drop in aggregate demand which
was caused by, or not counteracted by, monetary policy. Full stop."
I find this very interesting, because I don't think there's anything unique or defining of our generation about this answer. I think this is the obvious answer since the 1930s (one might say that it took Milton Friedman to bolster the second clause a little, but even Keynes was pushing devaluation and monetary policy as the first line of defense very early on). My view is that giving this answer is enough to buy you a seat at the table of serious economic discussion, and not much more.
And there's quite a bit of discussion left after we establish this point.
I Call Krugman’s Bluff on European Austerity
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