Captain Bernanke is piloting the USS Nominal Income through the Mediterranean. Suddenly a stiff wind starts blowing off the coast of Greece, threatening to drive the ship onto a dangerous shoal. The captain adjusts the wheel so that the ship is able to maintain its heading. We are safe. For now.
A year later the strong wind again blows off Greece, once again threatening to drive the ship off course. But this time the captain fails to react. “We’ve already tried doing steering, once is enough.” “Lots of people criticized my steering last time. They pointed out that the path of the ship didn’t change very much.” “Steering is no panacea, we need to do something about the wind and the shoal.”
PS. Krugman haters will enjoy tomorrow’s posts. If you like Krugman, just keep in mind that I’m obsessed with criticizing him because he’s the most articulate voice on the left–so it’s a compliment.