What Does It Mean
OK, OK, we always need to bear in mind Paul Samuelson’s line about how the stock market had predicted nine of the last five recessions. Still, the markets do seem to be telling us a couple of things:
1. The world looks a lot more like the way it’s viewed by the Krugman/Thoma/DeLong axis (hey, I like it) than as viewed by, say, the WSJ editorial page.
2. Policy makers have been worrying about the wrong things, obsessing over deficits when the real problem was lack of growth.
There are intimations that this could turn out to be more than a mere market plunge; European stresses are starting to make some nasty financial ripples that suggest a possible mini-Lehman event, although I think — I hope — governments and central banks will head this off. But if you had any doubts that we were on the wrong track, this should resolve them.
I wouldn't count on many of the heathen seeing the light. Fanatics make poor learners.
The first question should be will Obama be stirred out of his trance. I regret to say that I don't expect it.