We Avoided Great Depression II

But the downside is we'll be in trouble again shortly because we still don't understand the lessons of what we just endured, or how to act on them:

KUALA LUMPUR — Krugman said in a speech to an international business forum here that although the worst of the financial crisis was over, the world now faces a prolonged slowdown like Japan’s “lost decade” of the 1990s.

...“We seem to have avoided the Great Depression 2.0,” Krugman said, but added: “I do believe that full recovery is at least two years and probably more than that off.”

He compared the world economic picture to “a globalised version of Japan through much of the ’90s. Formally, Japan spent only pockets of its lost decade in recession, but as a whole it was a period of consistently slow growth.”

Krugman said that to find anything comparable to the current woes, economists have to look back to the 1930s, when a global slump was brought to an end “by a very large set of public works programs known as World War II.

“Hopefully we’re not going to repeat that strategy,” he joked, adding that policy makers could try more stimulus programs, higher inflation targets and spurring business investment.

...Krugman also urged a restructuring of the financial system to prevent a recurrence of the crisis, with more effective bank regulation, and limits on the risk that important institutions can take on.

“The general principle is that anything that in a crisis has to be rescued — like a bank — when you’re not in a crisis, has to be regulated like a bank,” he said.

“I have no confidence this is going to happen. In a way, the downside of our having managed to avoid a full repeat of the Great Depression is that we may have rescued the economy too soon before the political momentum for fundamental reform was strong enough to cause changes.

“Which means I worry this is all going to happen again in the not-too-distant future.”