I guess that this fits in with the Cash for Clunkers program. Of course, we could just pay people to go around rioting and burning down cities. Wouldn't that be a substitute for war? The UK must be really thrilled with their riots. Doesn't Krugman understand that this policy just moves spending from what else people would have been spending their money on? Here is the more serious question: we have four wars and that isn't enough? Iraq, Afghanistan, Libya, and Yemen. So Krugman is against winding down any of these wars? From CNN:
UPDATE: Krugman continues this theme:
Of course, inflation raises interest rates, making a difficult debt that much more difficult to pay off.
Fareed Zakaria: But even if you were, wouldn't John Maynard Keynes say that if you could employ people to dig a ditch and then fill it up again, that's fine, they're being productively employed, they'll pay taxes, so maybe Boston's Big Dig was just fine after all.
Paul Krugman: Think about World War II, right? That was actually negative social product spending, and yet it brought us out.
I mean, probably because you want to put these things together, if we say, "Look, we could use some inflation." Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what basic logic says.
It's very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish a great deal.
If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better –
Ken Rogoff: And we need Orson Welles, is what you're saying.
Paul Krugman: No, there was a Twilight Zone episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time...we need it in order to get some fiscal stimulus. . . .
UPDATE: Krugman continues this theme:
"What we need is actually the financial equivalent of war," [Paul Krugman] said during a talk at the 92nd Street Y in Manhattan. "What actually brought the Great Depression to an end was the enormous public spending program otherwise known as World War II."
World War II boosted government spending to 42 percent of total U.S. output, according to the Congressional Budget Office. Krugman said that while a fiscal stimulus program does not have to be on the scale of World War II, ideally it would involve "useful" infrastructure projects such as repairing bridges and sewer systems and building a railway tunnel between New Jersey and New York. . . .
Krugman said he believes that the Federal Reserve should print more money to spur "above-average" inflation for five years, raising prices to bring down both unemployment and debt. The overhang of household debt has largely caused and prolonged the economic downturn, he said. The Fed's response so far has been "marginal," such as its recent decision to reshuffle $400 billion of its portfolio from short-term to long-term securities, Krugman said, since $400 billion would only make a dent in the multi-trillion-dollar U.S. bond market. . . .
Of course, inflation raises interest rates, making a difficult debt that much more difficult to pay off.
So I thought that Krugman believed that it was the New Deal that helped save the US economy
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Oleh
abudzar
