May 2, 2014

Blame Krugman and Others

Economists share some of the blame for the Great Recession. Their failure was and still is one of education.
"In particular, this was no time to worry about budget deficits and cut spending, which would only deepen the depression. " Why Economics Failed, Paul Krugman, New York Times, May 1, 2014
The missing phrase in the above quote is "in the short run". Keynesians like Mr. Krugman need to stress more that the need to spend was a short run emergency and not a long-term policy. It is not unlike a family
member getting in an accident and breaking his arm. Even though the money may presently be tight, it needs fixing and that cost money.

Further politicians and economists who buy into Keynesian economists tend not to talk as much about restraining spending as the economy is rolling along nicely with solid growth and prosperity. I am a follower and believer in Krugman, but I do not recall too many occasions when he has aggressively shouted from the roof tops government spending needs controlling.

Most often when the economy is heating up all that is discussed to dampen it is a modest rise in interest rates. The same is true with politicians. They are never focused on doing what's right for the economy. Their focus is getting reelected and raising campaign funds.

When your seeking campaign dollars from oligarchs, it is no time to talk to them about the need to reduce demand for their products. It never happens.

Economic theory is of little value if the only time it is pushed are times when government needs to step up and spend to offset private demand. What we have is a failure to communicate.



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