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02/21/2006:

"What if the Cassandras are right?"

Cassandra had a curse put on her to make sure no one would believe her predictions. Two people who know how she must have felt are the economics professors Paul Krugman of Princeton and Wynne Godley of Cambridge. The two have been predicting the demise of the the US and UK economies respectively (and in Professor Godley's case, both) for years without, as yet, their predictions coming true.

Both were back in the fray last week. In one of his New York Times columns, Professor Krugman reminded us that last year America's imports were 57% larger than her exports, that her borrowing binge was unsustainable and that, since a "soft landing" was unlikely, there could be a 30% fall in the value of the dollar in order to eliminate the trade deficit. Professor Godley (writing with a colleague in the Financial Times) warned that excessively high trade deficits in the US (6.5% of GDP) and in the UK (4.5%), buoyed up by budget deficits and personal borrowing, were unsustainable. If personal borrowing and spending slow down, they argue, neither government has a policy to avert a "prolonged deficiency in total demand", which implies a serious economic recession. The professors are not alone. Among others, the venerable JK Galbraith, who has been right about so many things, has been predicting a stock market crash and high unemployment for well over 10 years.
guardian.co.uk