Friday, December 10, 2010

"Krugman: We Can’t Jump Start The Economy With More Spending"


From NetNet (Carney):
I’m always surprised—pleasantly surprised—when I find myself agreeing with Paul Krugman. Today is one of those surprising days.
Here’s what Krugman writes:
More than a year ago, I warned that the spate of relatively good growth news occurring then was only reassuring if you believed that the economic engine had caught, so that we didn’t need to worry about what would happen as stimulus faded away. The problem was that there was no good reason to believe that. As I have since tried to point out more formally in my work with Gauti Eggertsson, the best interpretation of our current difficulties is that we’re suffering from a deleveraging shock, and that the economy will need support until over-leveraged players have had time to work down their debt.
That logic implies that you need a tow, not a jump-start; the economy is going to need help for an extended period of time. 

I definitely agree with Krugman that our economic downturn is caused by a deleveraging shock. That has at least three important implications...MORE
Still trying to express my shock.