by Mario Rizzo
Some time ago I wrote a post with this name.
Now Paul Krugman is at it again with his ex-cathedra pronouncements. He says that because of the recent planned move by European countries in the direction of austerity and the talk in the US about austerity, we are on the verge on a “third” great depression in American history.
It is hard to know how to respond. Krugman has no evidence. He just repeats the Keynesian dogmas about spending and worries about deflation (of a persistent nature, he had better mean).
There is a certain madness in all of this.
What does the record show?
We have had fairly rapid economic growth recently (let us abstract from the reason for the moment), unemployment is falling, albeit slowly, the fiscal deficit is enormous, interest rates are at incredible lows, the monetary base has expanded beyond anything we have known, and the bond markets are reacting to years of unsustainable government spending in European countries.
Furthermore, we face government created uncertainties in the healthcare markets, the coming bankruptcy of Medicare and Medicaid, difficulties with Social Security as the population ages, state and local governments which have refused to make sensible reforms in the provision of their “vital” services for decades, and so forth.
And the root of our problems, says Krugman, is the lack of Aggregate Demand. If only we would demand more, then the world economy would snap back into full-employment equilibrium.
Does Krugman ever acknowledge the real controversy over whether the first (Bush) and second (Obama) stimulus packages had any substantial effect?
Does he acknowledge that there are very smart people out there who disagree with him?
Does he respond to his critics with respect, with seriousness, with data, with a recognition that economic theory has not stood still since Keynes wrote?
I think the answers are obvious.