The grim news keeps on coming for the global economy, which is bad enough. But the economists and the central bankers and government officials are all arguing about what to do, which is worse.
Moreover, they are arguing from first principles, about a fundamental question of economic theory, like medieval schoolmen disputing some arcane theological conundrum. And like medieval schoolman, they are appealing to authority, to the two high priests of modern economics, one of whom summed up the problem.
"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist," wrote John Maynard Keynes in his classic work, "The General Theory of Employment, Interest and Money."
Keynes believed that in times of real depression, when banks wouldn't lend, businessmen wouldn't invest and consumers wouldn't buy, the state should step in and borrow or create money in order to employ people and restart economic activity so people would spend again.
The problem is that politicians were easily tempted to do this in times of moderate slowdowns or recessions (usually in order to manufacture some artificial boom in time for the next election) rather than reserve such action for genuine emergencies. This promiscuous misuse of his theories undermined Keynes's influence.
The other high priest is Friedrich von Hayek, who started his career at the University of Vienna in the 1920s and went on to the London School of Economics to escape Hitler. In the 1950s Hayek became a star of the renowned economics faculty at Chicago, where he became a colleague and friend of the future Nobel laureate Milton Friedman.
"Milton and I agree on almost everything except monetary policy," Hayek once said. But the two men shared a common reverence for traditional or classical economic theory, which can be summed up in the phrase "there ain't no such thing as a free lunch." The Keynes proposal to escape a depression by government spending was all very well but at some point the bill for all that deficit spending and borrowing would have to be paid, probably through inflation.
And that is precisely where we are today. After the global financial system very nearly collapsed in the fall of 2008, governments around the world from Washington to Beijing, London to Moscow, responded by pumping in money. Roughly speaking, governments pumped in $3 trillion through deficit spending and stimulus packages and the central banks created another $3 trillion in emergency liquidity.
The price of $6 trillion was more than 10 percent of global gross domestic product but it worked. We avoided another Great Depression. But that tsunami of money produced a disappointingly modest recovery. The banks remain under stress, unemployment remains stubbornly high, tax receipts are low and world trade had not recovered to its previous peak. Worse still, even this feeble recovery is fizzling out as the deficit spending is cut back.
Frightened by the level of debt they are accumulating, and worried that investors might stop buying their bonds, governments are reining in spending. The British are planning to cut public spending by close to $200 billion over four years. The Germans are cutting almost $100 billion and the French say they will do the same.
In the battered eurozone, where debt levels are putting the euro at risk, the Greek, Spanish and Portuguese are cutting even more savagely, as the price of being able to borrow any more funds. Spain, one of the world's Top 10 economies, had to pay 6.6 percent in interest last week to borrow $4 billion and Greek debt commands more than 10 percent.
In the United States, the Obama administration says this is no time to stop the deficit spending, as the housing market sags again and the brief boost to employment from temporary hiring of census workers comes to an end. Congress seems unwilling to authorize any more stimulus funds but that didn't stop President Barack Obama from making a public appeal to the Group of 20 nations and to his European allies to delay their budget cuts.
Obama is following Keynes and the Europeans are following Hayek. The problem is that they are both right, but right in different ways. If everyone follows the Keynes model, investors will go on strike and refuse to buy more government debt. But if they all follow Hayek and all cut back at once, the global economy will go into another recession.
And now that the Chinese economy is slowing as their usual export markets falter, it isn't easy to see where future economic growth will come from.
The obvious answer is that some governments, those with trade surpluses like Germany and China, are in a position to continue deficit spending and thus to prop up global demand. Most are not but those that can should do so. This is the argument that the International Monetary Fund has been making but neither the Germans nor the Chinese want to take the political risks of following that advice.
The result is that a double-dip recession now looms as the heirs of Keynes and Hayek grapple in a fruitless but deadly embrace on the edge of a cliff. Keynes was right about the posthumous power of "some defunct economist" but he never thought that he would be the man in question.