17 Sep 2012

This Time Will Be Different

Economics, Federal Reserve, Krugman 4 Comments

“One good question some of my readers have been asking is how the Fed’s new policy might actually boost the economy — that is, how could changes in expectations turn into a real increase in demand?

[W]e actually can hope that the Fed’s new policy will boost housing as well as operating through other channels, and therefore that it can act more like conventional monetary policy in fostering recovery.

That said, I’m still skeptical about whether monetary policy alone can come close to doing enough…” — Paul Krugman, September 16, 2012

* * *

“If the story of the current U.S. economy were made into a movie, it would look something like ”55 Days at Peking.” A ragtag group of ordinary people — America’s consumers — is besieged by a rampaging horde, the forces of recession.

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Judging by Mr. Greenspan’s remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman’s crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.” — Paul Krugman, August 2, 2002

4 Responses to “This Time Will Be Different”

  1. skylien says:

    Come on Bob, Krugman is just joking…

    • Bob Murphy says:

      No, first he has to say he was quoting someone else, then say he wasn’t endorsing Fed action to get a recovery, and only then is it a joke.

      • skylien says:

        Right, how rude of me to short cut this…

        I am curious if Gene also is already devising in his mind the excuses Krugman will offer when the economy actually doesn’t genuinely recover (you may notice this if nothing improves and government debt to GDP goes Fujiyama style [volcanic event guaranteed] or it is a phony recovery characterized by another big boom/bust in housing or/and stocks, or simply stagflation) after these measures. Contrary to Gene though I really don’t think this to be funny!

        Honestly, you just could not possibly make this up… Try to cure an engineered busted housing bubble with another engineered housing bubble and you still are taken seriously.

  2. Major_Freedom says:

    “I only say kind things about inflation because I know, even if at an unconscious level, that persistent governmental budget deficits requires a printing press. Thus, I will always couch these kinds words with a weak form of skepticism, so as to jealously protect Keynesian style planning and prevent my intellectual investment from going explicitly bankrupt. If anything lends credence to further “spending” via governmental power, and allows me to believe greedy wealthy Republicans are getting their just deserts, then I am for it.” – Paul Krugman.

    It should go without mention that the above is a paraphrasing of Krugman’s heretofore statements.

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