Saturday, June 19, 2010

Krugman On Austerity

I have to admire Paul Krugman's tenacity. Once again, he tries to school the insane, who in this case would be Alan Greenspan and others who lament that there's been no inflation yet despite all that money we're supposedly spending in stimulus:

You know, some people might take the fact that what’s actually happening is exactly what people like me were saying would happen — namely, that deficits in the face of a liquidity trap don’t drive up interest rates and don’t cause inflation — lends credence to the Keynesian view. But no: Greenspan KNOWS that deficits do these terrible things, and finds it “regrettable” that they aren’t actually happening.

Of course, as I've pointed out Krugman could look a lot closer to home and find an economist who won't change his beliefs when confronted with contrary facts. I sometimes wonder if there is an economist anywhere who has changed any of his fundamental assumptions about the subject since he received his PhD.

Still, suggesting that somehow the bad results he expected to see not being there is a bad thing demonstrates how tenuous Greenspan's grasp of how our economy works really is, and how unlikely he, or his successor, is to learn anything.

Krugman also offered an explanation of why the idea that economies can grow despite austerity programs is mistaken. The short version - none of the examples offered up actually are like our situation. In fact, most are nothing like it, save that a national economy was in a recession. It's worth a read, I think.

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