The right time?

Here is one of my favourite jokes. It works better when it is spoken, but you will get the idea.

Person A: Do you know what the key is to the art of good joke telling?

Person B: No, tell me, what is the key to the...

Person A: Timing.

Economic policy makers around the world probably don't find this joke very funny at the moment. Timing, you see, is currently their main challenge.

Specifically, when, and how quickly, should they withdraw the stimuli — low interest rates and high budget deficits — that helped to avoid the "great recession" that we were threatened with two years ago. The popular name for this process of withdrawing monetary and fiscal stimuli is the "exit strategy".

The policy makers' dilemma is clear. If they allow the stimuli to apply for too long, there is a danger that the world economy will overheat and inflation will take off. But if the stimuli are withdrawn too soon and quickly, the world economy may fall back into recession.

My instinct is that the danger of inflation taking off is relatively low at the moment, while that of a double-dip recession and deflation (falling prices) is much greater. The economic recovery is still very fragile.

But although interest rates are likely to remain low, many governments — including those of Britain, Germany, Italy and the Netherlands — are talking tough about reducing their budget deficits drastically. (It should be noted that most of these decifits ballooned out of control as a result of the recession, not deliberate government decisions.)

But are the various planned austerity cutbacks too much too soon? Martin Wolf, writing in Financial Times, is clearly worried that they are. So is Paul Krugman, the Nobel prize winning American economist.

Talking of Krugman, I recently bought a copy of his excellent textbook, Economics. For those of you who would prefer to read it in German, an edition with the title Volkswirtschaftslehre has recently been published by Schäffer Poeschel, which, like Spotlight Verlag, is owned by the Georg von Holtzbrinck Group.

PS Another fascinating economist, who is receiving a lot of attention for his analyses of the problems of the eurozone, is the British blogger Edward Hugh. Read more here.