What sets Krugman aside is his advocacy now of strong economic stimulation. The problem with his approach is in how the goal is achieved, and that monetarily that as interest rates remain low investment may be in roads, sewers, machines, property, and labour substituting technology in preference to ending unemployment!
Were the government to put money into employment creating activity and labour using capital activity, Krugman's theses might work. The consequence however now of low interest rates and bailouts is that profits and asset values grow fast relative to wages, hence employment objectives appear late in the upturn rather than soon. This mal-distribution of income effect is strengthened by speculative and merger activity. Labour and wages do very poorly on a recovery that takes forever.
My prescription is to hike interest rates, punish governments for borrowing, allow bad banks to fail immediately, raise taxes on gas and remove energy subsidies going to unsustainables, and kill the leverage gambling activity, kill investment on labour substituting machinery and attract in capital from abroad. Paying one's way would trigger gold values to fall and must therefore lead to investment that is properly funded by the share market rather than money deposit creation!
So there you have it. In my opinion, Krugman is totally wrong and David Stockman is partially right, and Buffett and me are totally right.
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