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dcrednek (79.05)

Paul Krugman's latest rant

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August 18, 2011 – Comments (6)

I just finished reading Paul Krugman's piece called "The Hijacked Crisis" which was published in the NYT on August 11, 2011.  For those of you unfamiliar with him, he's a Noble laureate and an unabashed Keynesian economist.  He's a smart guy from an academic standpoint.  He's also a deep thinker.  He's not dumb or dim.  But for now, his assessment of what the solution is to the US economic malaise is, in a word, C-R-A-P.    Read for yourself:

http://www.nytimes.com/2011/08/12/opinion/the-hijacked-crisis.html?partner=rssnyt&emc=rss

 I agree with him that President Obama has focused too much on the deficit discussion (with no action to show for all that time spent talking) and too little time and attention on jobs creation.  But he states that "austerity policies...will make the economy even weaker" and I couldn't disagree more. Britain was quick to develop and implement an austerity package and while times aren't great in the UK at least they're not falling.  Krugman also pleads for a "short-run fix" over that o f long-run solutions to systemic problems.  Basically he says we should push a couple hundred billion more into pick & shovel public works jobs ("more government spending" in his words) because borrowing costs are so low.  And he advocates for more "aggressive moves to reduce household debt via mortgage forgiveness and refinancing". And what he calls an "all-out effort by the Federal Reserve to get the economy moving" is a convoluted expression roughly translated to "print money until no one will accept it as currency and until it takes a wheel-barrow amount of dollars to buy a loaf of bread".  Maybe I am exaggerating that last bit, but he readily admits and even advocates for higher inflation "to help alleviate debt problems".

 Wow.  A written plan which included all of that might be summed up in two words:  toilet paper.   As a counter point to Krugman's suggestion I'd advise folks to acquaint themselves with another Nobel-winning economist named Friedrich Hayek.  Another great one that would offer an alternative to Krugman's propaganda is Milton Friedman.  It is apparent that the works of Hayek and Friedman will never be popular with the current administration. 

 Friedman once said that "if you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand".  He also said that "inflation is taxation without legislation".  I agree with him in both cases and find both quotes very relevant under the current circumstances.

6 Comments – Post Your Own

#1) On August 18, 2011 at 5:49 PM, miteycasey (35.21) wrote:

Part of the problem is who the money is going to.

It's going to banks and corporations who aren't spending!!!

Krugman's idea would work if the money was actually spent, but the money isn't being spent on goods. It's being hoarded in bank accounts and T-bills.

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#2) On August 18, 2011 at 6:26 PM, SithEmpire (< 20) wrote:

Our current infrastructure suffers from 2 decades of underinvestment.  We need to pour 100's of billions of dollars into roads, bridges, water, sewer, etc.  Or we have the private sector take them over and pay exorbant tolls and fees.  Either way, we're all going to pay for it through borrowing and higher taxes or being nickel and dimed by private companies.

Think of it this way.  You've got a cavity.  You can go to the dentist now and have it filled for $200.  Since you don't have insurance, you pay monthly at a 10% apr.  Or you can be stubborn, and deal with the annoyance until the pain is too great.  By then, 18 months later, you need a root canal, the damage is too great.  But this will cost you $1000.  And interest is now 18%.

If stimulus was implemented for infrastructure, it would be money wisely spent.  And would put people to work for decades.  I don't see anything wrong with that.

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#3) On August 18, 2011 at 6:53 PM, dwot (97.28) wrote:

Now, now, Krugman is a super hero, http://caps.fool.com/Blogs/superhero-paul-krugman-saves/629852.

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#4) On August 18, 2011 at 7:11 PM, Pat4Ra (< 20) wrote:

UK is probably rethinking austerity because it has not worked so far!!

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#5) On August 18, 2011 at 7:24 PM, ETFsRule (99.94) wrote:

But he states that "austerity policies...will make the economy even weaker" and I couldn't disagree more. Britain was quick to develop and implement an austerity package and while times aren't great in the UK at least they're not falling.

How did you come to the conclusion that things aren't falling in the UK?

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#6) On August 18, 2011 at 7:47 PM, dwot (97.28) wrote:

Oh, ETFsRule, I missed that comment on Britain...

I just had my home broken into here and it can be challenging here, but this is nothing compared to my teaching experiences in Britain.

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