Monday, November 18, 2013

Krugman on Summers: The Middle Class Is Screwed, Unless...

...somebody does something. Duh.

Of course, Krugman's latest column speaks to our dilemma:
More broadly, if our economy has a persistent tendency toward depression, we’re going to be living under the looking-glass rules of depression economics — in which virtue is vice and prudence is folly, in which attempts to save more (including attempts to reduce budget deficits) make everyone worse off — for a long time.
I know that many people just hate this kind of talk. It offends their sense of rightness, indeed their sense of morality. Economics is supposed to be about making hard choices (at other people’s expense, naturally). It’s not supposed to be about persuading people to spend more.
But as Mr. Summers said, the crisis “is not over until it is over” — and economic reality is what it is. And what that reality appears to be right now is one in which depression rules will apply for a very long time.
And Summers' speech, in which he says:
It is not over until it is over…. We may well need, in the years ahead, to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back, below their potential…
Watch the whole thing if you like:

Some commenters on Krugman's column were surprised he didn't mention stagnant wages or income inequality as causes of this ongoing and potentially permanent slump. Those of us who read him regularly know that those issues are always on his mind. He also doesn't mention the lack of any current fiscal stimulus programs, either, but he does that for the same reason: Those familiar with him know how much he continues to promote such efforts. What he does stress is trade deficits -- which all can translate to manufacturing jobs moving overseas -- and a favorite of his, the paradox of thrift, that is, the practice of saving money when times are tough, thus reducing demand, which then makes the times even tougher.\

 Individuals, the private sector, and the public sector are all currently guilty of this.

I'm used to some pretty nasty commenters on Krugman's blog or below his columns, but generally the predominant theme is that our permanent slump is due to accumulation of wealth at the top, with corporations able to undo any good that may come from fiscal stimulus or monetary policy simply by maximizing profits at the expense of workers they're doing everything they can to avoid rehiring. The wealthy just hang on to the money that continues to flow to the top. And, by and large, I agree with the commenters, especially with those calling for more progressive tax rates and so on. I favor, as blogger Atrios does, widespread helicopter drops of money on one and all. That'll increase demand, by god!

Fat chance of any of that. At least it's good to see these ideas bandied about more than usual.

Let's assume Krugman, as a dyed-in-the-wool New Keynesian, favors all of the above. It well may be the only way out of our current "permanent" slump. It doesn't have to be this way, but the current conservative/libertarian crowd that have hijacked our government wouldn't have it any other way. So, too, with the austerity mavens of Europe.

The beatings will continue until morale improves!

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