Economics of Mercy?

I wrote a blog post "slaves of leverage" [thank you for the comments] in Nov 2008. Now you see it happening: pension systems are seriously damaged, taxpayers' money is poured into banks, goverments are borrowing too much. Simply enslaving.

But have we seen this mess resolved? No we have not. Instead uncertainty prevails. As prevails fear of protectionism, sovereign debt defaults and even break-up of euro. They say this is unique, and it is. The mess has shaken foundations of global economic system. It is not a banking crisis in some distant country. For an ordinary banking crisis the resolution is clear: isolate bad debts into a fallen bank, write-off bad debts in other banks to make them healthy, start banking sector consolidation process, aim to efficiency and growth [well, you see some corporate bankruptcies and despaired borrowers but do not mind]. This will work for the isolated Iceland. However, it will not work for the US, the UK, Germany, France, China, India or other large countries at the same time. The patient would die.

Also remember that normal open macro-economics is based on an idea that we have a stable international economy and a national economy. Unfortunately this does not apply now. Traditional macro-economics could be out of order. Think out-of-the-box.

Economic history gives some means for resolution in situations of overwhelming economic distress, such as protectionism, war, hyperinflation [often in association with an extensive use of Keynesian economics as noted in the comment of Philippe Carrel] and slavery. Or a bit more positive ones such as decades of hard-work, modest way of living, economizing. What else: economic aid [development aid, Marshall aid], voluntary help, charity, forgiveness [mentioned in the comment of Steve Liles] and mercy? Of these, perhaps aid, forgiveness and mercy could be the civilized ones.

Do we have mechanisms for mercy? Yes, we have cultural/religious machanisms and No, we do not really have mechanisms for mercy in global economic system. Neither mercy is fully recognized in main-stream macro-economics. However, we have a lot of literature on economics of mercy in other contexts, for sure. Surprisingly, this stream of economics could have major impact on how the crisis will be resolved.  

To reach a cost-minimizing resolution is about economics of mercy, purely since we are aware of expected costs of sovereign debt default, war and hyperinflation from the past. Perhaps we need to go beyond Keynes and Fisher to resolve this mess.

See Crisis of Credit in the US: http://vimeo.com/3261363?pg=embed&sec