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Thoughts on ETDN

A friend on facebook wanted to know what I thought about professor Krugman or, to be more specific, his appearance on PBS, and below is what I had to say.

[Krugman] is admired and despised at the same time by many as the video shows but I have read his book, "End this Depression Now", and I have to say his arguments are quite convincing. Many worry that the book and indeed many of his NYTimes blog posts do not really talk about the implications of amassing debt for future generations. But his argument is that we are going through a slump right now, and for a lot of people in this country things have actually gotten worse while many of the banks who helped steer the global economy into the ditch got bailed out and have started turning a profit. He recommends mortgage relief - renegotiating contracts for example, to help the ordinary people who have seen their networth tumble as they lose their homes to foreclosure. Since the private economy is not showing sufficient enough demand to spur growth and employment, Krugman believes its only the government that can afford to inject the kind of push that is NEEDED to get things moving again. He likes to use the second world war as an example of the kind of stimulus spending required during times like this.

I do agree with him that the fear about the inflation that might result from such public investment is all too often overblown, especially if you consider the amount of liquidity that has already been injected into the system without any serious rise in consumer prices. The Fed has done a lot but since interest rates are at zero, conventional monetary policy can no longer do the job. Macroeconomics recommends fiscal policy, and the Obama stimulus, according to Krugman was too small. Now is definitely not the time for austerity (see England). But we have to be sure that when things start moving again, and the economy is on track then we can talk about the debt ceiling.

The argument about inter-generational equity should be measured against the reality on the ground. Underutilized capacity and mass unemployment today means less stuff is produced for future generations, and the infrastructure spending that is proposed by people like Krugman would actually lay the foundation for tomorrow's entrepreneurs. So I guess to answer your question, I believe that while he is sometimes impatient with people who do not see the world the way he does, his views and prescriptions deserve to be taken seriously. He is not advocating government take-over of the economy, but is imploring us to look at the evidence, which appears to be on his side at the moment.

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