In his Monday New York Times column, economist Paul Krugman argued that the financial markets have "thrown in the towel" in a move he's christened "The Great Capitulation."
Investors have decided that the world economy is "turning Japanese," meaning that "it looks as if weak demand and a bias toward deflation are enduring problems." Instead of believing, as they long have, that these conditions were temporary, they've effectively conceded that "persistent weakness is the new normal."
Governments -- including the United States -- should be taking advantage of the situation to engage in much-needed public investment:
America’s aging infrastructure is legendary, but not unique: years of austerity have left German roads and railways in worse shape than most people realize. So why not borrow money at these low, low rates and do some much-needed repair and renovation? This would be eminently worth doing even if it wouldn’t also create jobs, but it would do that too.
I know, deficit scolds would issue dire warnings about the evils of public debt. But they have been wrong about everything for at least the past eight years, and it’s time to stop taking them seriously...