A couple of things to remember about Paul Krugman

Necessary lessons…

Love him or hate him Paul Krugman has been awfully right with regards to the macro picture in the last few years.  He’s one of the rare economists who had the foresight to see the housing bubble and the likelihood of economic downturn that would result from it.  Krugman recently caused a stir when he said the US economy was headed for the third depression.  He isn’t back down from that outlook:

“I’ve had a couple of conversations lately with people who follow politics and public affairs, but aren’t that close to the economic discussion — and I’ve discovered that there are two comforting delusions still out there.

Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this.

But it’s not at all true. GDP is growing below potential; employment, even if you focus just on private employment, is growing more slowly than the working-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever.

Delusion #2 is the belief that the stimulus may yet do the trick, because there are still substantial funds unspent. I tried to deal with this last year. The level of GDP depends not on total funds spent, but on the rate at which funds are being spent, which has already peaked; GDP growth on the rate of change in the rate at which funds are being spent, which peaked last year. It’s all downhill from here.”

2 thoughts on “A couple of things to remember about Paul Krugman”

  1. Thanx for putting Krugman on my radar STP. It is amazing how crystal clear he makes his point in a language that a non economics guy like myself can understand.

    Unfortunately, his article doesn’t inspire a lot of confidence in the future of the American economy. That doesn’t bode well for us Canadian neighbours to the north.

  2. No problemo, Darcy. It’s amazing how he’s been proven right over and over again. And this quote just sums up the situation in a single sentence:
    [ “Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse.”] It’s not more complicated than that, really.

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