Krugman Says Stay the Course

[Still Sensible]

The debate over economic policy has taken a predictable yet ominous turn: the crisis seems to be easing, and a chorus of critics is already demanding that the Federal Reserve and the Obama administration abandon their rescue efforts. For those who know their history, it’s déjà vu all over again — literally.

For this is the third time in history that a major economy has found itself in a liquidity trap, a situation in which interest-rate cuts, the conventional way to perk up the economy, have reached their limit. When this happens, unconventional measures are the only way to fight recession.

Yet such unconventional measures make the conventionally minded uncomfortable, and they keep pushing for a return to normalcy. In previous liquidity-trap episodes, policy makers gave in to these pressures far too soon, plunging the economy back into crisis. And if the critics have their way, we’ll do the same thing this time.

(snip)

Those demands should be ignored. It’s much too soon to give up on policies that have, at most, pulled us a few inches back from the edge of the abyss.

http://www.nytimes.com/2009/06/15/opinion/15krugman.html

[JDPriestly]

1. The mistake that those who warn that there is too much borrowing

are making is believing that if the government only borrowed (and spent) less, the private sector would borrow (and spend) more. As Krugman points out, they are wrong because the problem is that the private sector is not lending. I would also have to add that the private sector is not borrowing or lending although interest rates are extremely low at least on savings. That's how the liquidity crisis works in the real world. Even if the government balanced the budget at this time, private investors would not borrow or spend.

Thank you, Paul Krugman.

Now, if we changed out trade agreements so as to provide just a tiny bit of incentive for real investment in American industry and high-wage sectors of our economy, then the private sector might revive.

I am not a socialist. I would like to see a robust private sector. Why do I prefer (regulated) private enterprise? Because, in areas like industry, food services, consumer goods, etc. I believe that private enterprise is more creative than socialism. I am of course making this judgment based on my travels in Eastern Europe during the communist period there. I have to qualify what I am saying to clarify that, I am not referring to the democratic socialism that exists in most of Europe today. That is what I would call a mixed economy. How well it works varies from place to place depending on the mix.

Krugman is absolutely right on this as he is on so many things.

[Skink]

2. Those voices have a hidden agenda which is to quash healthcare reform.

They know that these policies are working and that for Obama to have the money he needs to do great things we must stay the course.

[Demeter]

3. If They Are THAT Worried About Inflation, They Can Tax the Obscenely Rich

and decrease the national deficit.