Krugman’s Willfully Ignorant Explanation for Why the Economy is Depressed

Krugman’s Willfully Ignorant Explanation for Why the Economy is Depressed

Jeremy R. Hammond

June 6, 2013

Paul Krugman offers a very simple summary of why the U.S. economy is so bad:

Why is our economy depressed? Because many players in the economy slashed spending at the same time, while relatively few players were willing to spend more. And because the economy is not like an individual household — your spending is my income, my spending is your income — the result was a general fall in incomes and plunge in employment.

Right!

Well, either that, or the economy is depressed because the Federal Reserve followed the policy advocated by Paul Krugman of printing money to lower interest rates in order to replace the burst dot-com bubble with a housing bubble, which, in conjunction with government policy of encouraging homeownership, it successfully managed to do, with the consequent misallocation of resources into unsustainable lines of production inevitably ending with the bursting of that bubble, too, with the resulting mass unemployment and economic recession being perpetuated by government doing more of the same that caused this problem in the first place in order to solve it, instead of allowing a market correction to occur in order to liquidate the malinvestment and restructure the economy towards sustainable growth based on investment of real capital, which would require people to defer consumption and allocate savings, as opposed to just incentivizing people go even further into debt with even more borrowing and spending thanks to easy credit created out of thin air.

Take your pick.

http://www.jeremyrhammond.com/2013/06/06/krugmans-willfully-ignorant-explanation-for-why-the-economy-is-depressed/?fb_source=pubv1