EdwardBaiamonte
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- Nov 23, 2011
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I [Krugman] would summarize the Keynesian view in terms of four points:
"1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
Is this a complicated, convoluted doctrine? It doesn’t sound that way to me, and the implications for the world we’ve been living in since 2008 seem very clear: aggressive monetary expansion, plus fiscal stimulus as long as the zero lower bound constrains monetary policy.
But strange things happen in the minds of critics. Again and again we see the following bogus claims about what Keynesians believe:
B1: Any economic recovery, no matter how slow and how delayed, proves Keynesian economics wrong. See [2] above for why that’s illiterate.
B2: Keynesians believe that printing money solves all problems. See [3]: printing money can solve one specific problem, an economy operating far below capacity. Nobody said that it can conjure up higher productivity, or cure the common cold.
B3: Keynesians always favor deficit spending, under all conditions. See [4]: The case for fiscal stimulus is quite restrictive, requiring both a depressed economy and severe limits to monetary policy. That just happens to be the world we’ve been living in lately.
I have no illusions that saying this obvious stuff will stop the usual suspects from engaging in the usual bogosity. But maybe this will help others respond when they do."
Of course Krugman is utter BSing since 1) one would be very very hard pressed to find anything like what Krugman said in the General Theory and, 2) Krugman wanted a trillion dollars in deficit spending stimulus while we were running a $15 trillion debt and $600 billion deficits. If deficits (robbing Peter to pay Paul) worked the economy would have been booming a long time ago.
"1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
Is this a complicated, convoluted doctrine? It doesn’t sound that way to me, and the implications for the world we’ve been living in since 2008 seem very clear: aggressive monetary expansion, plus fiscal stimulus as long as the zero lower bound constrains monetary policy.
But strange things happen in the minds of critics. Again and again we see the following bogus claims about what Keynesians believe:
B1: Any economic recovery, no matter how slow and how delayed, proves Keynesian economics wrong. See [2] above for why that’s illiterate.
B2: Keynesians believe that printing money solves all problems. See [3]: printing money can solve one specific problem, an economy operating far below capacity. Nobody said that it can conjure up higher productivity, or cure the common cold.
B3: Keynesians always favor deficit spending, under all conditions. See [4]: The case for fiscal stimulus is quite restrictive, requiring both a depressed economy and severe limits to monetary policy. That just happens to be the world we’ve been living in lately.
I have no illusions that saying this obvious stuff will stop the usual suspects from engaging in the usual bogosity. But maybe this will help others respond when they do."
Of course Krugman is utter BSing since 1) one would be very very hard pressed to find anything like what Krugman said in the General Theory and, 2) Krugman wanted a trillion dollars in deficit spending stimulus while we were running a $15 trillion debt and $600 billion deficits. If deficits (robbing Peter to pay Paul) worked the economy would have been booming a long time ago.
