January 21, 2014

  • Why didn’t we just listen to Krugman?

    JDN 2456679 PDT 18:22.

    End This Depression Now! is an excellent book, very easy to read, that gives clear and unambiguous explanations of how we could fix the economy in the US and Europe. I’ve recommended other books about the Second Depression in the past; even if you never get around to reading those ones, at least read Krugman.
    Krugman is, without a doubt, the greatest economist alive today. Nor is it a coincidence that he derives most of his ideas from the greatest economist ever, namely Lord John Maynard Keynes. Along with a select few others—Stiglitz, Kahneman, Ariely, Reich—Krugman is a beacon of sanity in an insane world; if we would simply listen to him, most of these crises could be prevented. And don’t take my word for it; studies have shown that Krugman’s economic predictions are the most accurate in the US media today. Moreover, Krugman and Stigilitz both predicted the 2008 crisis before it happened, while meanwhile Bernanke and Greenspan were cheerfully oblivious—and then Greenspan had the audacity to claim “No one saw this coming.” Actually, we did; you just weren’t listening.
    End This Depression Now! doesn’t go into a lot of detail about what caused the crash or who was responsible for it, but that’s because Krugman considers another objective far more urgent: What do we do to fix it? His answer is really quite simple: We need more government investment. Solar panels and maglevs, bridge repairs and electrical grid modernization. We need to spend trillions of dollars now, so that we don’t suffer trillions of dollars in lost productivity later.
    Won’t that put us further into debt? Yes, Krugman admits; but it’s well worth it, just as it was well worth it when we spent a comparable amount (inflation-adjusted) in World War 2. He carefully addresses the sound-byte “How can you fix debt with debt?” by pointing out that the key is always whose debt to whom; the government owing money to the American public is quite different from the American public owing money to a crime syndicate of multinational banks.
    Most of Krugman’s recommendations are surprising for how non-radical they are; in the 1960s and 1970s they were basically standard, mainstream economic policy—and they worked pretty well. Unfortunately, the people who called themselves “Keynesians” didn’t understand cost-push inflation or the OPEC cartel, so their failure to predict the Nixon stagflation discredited unrelated actual Keynesian ideas. Actually we might have avoided the whole thing if Carter had stayed in office and continued his program of investment in solar power; when OPEC jacked up the price of oil, we could have just stopped using oil and given OPEC the middle finger.
    If the book has any shortcomings, it is in being a bit too optimistic about our political system. Krugman thinks—or at least hopes—that if we just keep saying the truth often enough, people in power will begin to hear it. I fear it may take something more drastic than that.

Comments (1)

  • There is debt, and there is investment. Spending money “we don’t have” is an illusion. (Money is a revolving tool. If someone doesn’t have it, another who has the same basic set of needs, does- therefore there is no debt, when it comes to meeting the needs of the whole.) Investment in the god of the public is always “win-win”.

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