Paul Krugman: "The Triumph of Bad Ideas"

[Hissyspit]

http://www.nytimes.com/2013/01/07/opinion/krugman-the-big-fail.html

OP-ED COLUMNIST
The Big Fail
By PAUL KRUGMAN
Published: January 6, 2013

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This isn’t how things were supposed to be. If you had polled the economists attending this meeting three years ago, most of them would surely have predicted that by now we’d be talking about how the great slump ended, not why it still continues.

So what went wrong? The answer, mainly, is the triumph of bad ideas.

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The story, at this point, is fairly straightforward. The financial crisis led, through several channels, to a sharp fall in private spending: residential investment plunged as the housing bubble burst; consumers began saving more as the illusory wealth created by the bubble vanished, while the mortgage debt remained. And this fall in private spending led, inevitably, to a global recession.

For an economy is not like a household. A family can decide to spend less and try to earn more. But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall — and unemployment will soar.

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At that point governments needed to step in, spending to support their economies while the private sector regained its balance. And to some extent that did happen: revenue dropped sharply in the slump, but spending actually rose as programs like unemployment insurance expanded and temporary economic stimulus went into effect. Budget deficits rose, but this was actually a good thing, probably the most important reason we didn’t have a full replay of the Great Depression.

But it all went wrong in 2010. The crisis in Greece was taken, wrongly, as a sign that all governments had better slash spending and deficits right away. Austerity became the order of the day, and supposed experts who should have known better cheered the process on, while the warnings of some (but not enough) economists that austerity would derail recovery were ignored. For example, the president of the European Central Bank confidently asserted that “the idea that austerity measures could trigger stagnation is incorrect.”

MORE[p]

[Skittles]

1. yup - VERY bad ideas

[chatcat11]

2. Sad but very true.

[abelenkpe]

3. K&R nt

[JDPriestly]

4. K&R.

[ProSense]

5. "And here in America...

And here in America, Republicans insist that they’ll use a confrontation over the debt ceiling — a deeply illegitimate action in itself — to demand spending cuts that would drive us back into recession.

Yup!

[MannyGoldstein]

6. Bullshit! No Wonder Krugman's Not On Any White House Guest Lists!

Just look at what big government spending did in FDR's first term: Unemployment only dropped by 40%, and GDP only grew at 9% per year.

That nothing compared to Obama's first term where... uh, bad example... but you know what I mean. Sure, Keynesian pump priming *works*, but is that what we really want to be? A nation of people that has great success?

I think not.

Better to go with our gut. Austerity!

Regards,

Third-Way Manny

[ReRe]

7. Manny, Manny, Manny...would you please use the sarcasim thingy?

....people are going to start taking you seriously.