Debt Is a Drug (And So Is Austerity), by Paul Krugman, in NY Times: A commenter tells me that there is a term of art in the substance use literature, “generational forgetting”, that seems relevant to our economic troubles. And it’s true, e.g. here (pdf):
Adult norms against youth substance use also can be eroded by “generational forgetting”. When prevention initiatives have enough success to greatly decrease youth use of a substance, problems stemming from such use that were self-evident during the times of greatest use of the substance may be forgotten as new cohorts of youth move into pre-teen and teen years.
That’s perfect: as memory of bad things fades, a new generation is tempted to repeat an earlier generation’s mistakes.
The most obvious application is to Minsky’s theory of financial instability. An economic crisis alerts both officials and the private sector to the dangers of excessive leverage; the resulting regime of public regulation and private caution brings a long era of stability. But eventually the personal and institutional memory of the dangers of debt fades, leading to deregulation and leveraging up — setting the stage for the next deleveraging crisis.
But the same thing applies to public policy in response to depression, in the seemingly opposite direction. The Great Depression taught policy makers the hard way that tight money and fiscal austerity were really bad ideas in the face of a deeply depressed economy; but several generations on all that was forgotten except by the economic historians, and policy makers were ready to resurrect the Treasury View, get all worked up about the dangers of inflation despite the absence of actual inflation, and in general to repeat their grandfathers’ mistakes in full.
There have been a fair number of finance types saying things like “government stimulus is heroin”. Actually, they’re wrong; it’s austerity in the face of depression that’s just like heroin, a dangerous drug that resurfaces at intervals because the next generation has forgotten the damage it does.