A Nobel Prize Winner's Prescription For Economic Growth
Nobel Prize-winning economist Paul Krugman weighed in today on how to fix the economy in an interview on NPR. Among his key points:
1. Individuals and businesses are in cost-cutting mode and this is a sensible individual choice, but collectively, these choices are killing the economy.
2. The above is why we have governments, which can stimulate the economy by creating demand. As much as Republicans scream and yell, the fact is that it's beneficial to the economy if we have some institutions that aren't bound by the need to turn a profit or be responsive to market conditions. Governments act as fail-safes, the economic equivalent of a fuse box. In nature, lack of genetic diversity is a recipe for disaster. Making the economy completely dependent on institutions that all work the same way and have the same motivations (ie, the Republicans' "run the government like a business" mantra) is equally foolish. jajy1979 once put it another way: economies have a lot of moving parts and by cutting off cash flow, you essentially grind the gears and cause the whole thing to come to a halt.
3. We've seen this movie before. This is not, as is so often reported, the "first global recession". The same thing happened in the 1930's and many economists are frustrated by the fact that so many of today's global policy makers are making the exact same mistakes all over again.
4. Yes, we can borrow our way out of this. To get the global economy moving again, those who can afford to borrow heavily should do so. And the nation that is most able to borrow right now is the United States. Currently, the US government can borrow at some of the lowest interest rates in history. That fact in itself blows Republican arguments about the evil of government debt right out of the water. Remember, interest rates are set by the actions of people in the market who know something about economics. If U.S. debt were such a disaster, then borrowing more money would be prohibitively expensive, but it's not.
5. In addition to borrowing, we should also be printing more money. More lubricant for the moving parts, as it were.
Mr. Krugman's latest book is called End This Depression Now!
1. Individuals and businesses are in cost-cutting mode and this is a sensible individual choice, but collectively, these choices are killing the economy.
2. The above is why we have governments, which can stimulate the economy by creating demand. As much as Republicans scream and yell, the fact is that it's beneficial to the economy if we have some institutions that aren't bound by the need to turn a profit or be responsive to market conditions. Governments act as fail-safes, the economic equivalent of a fuse box. In nature, lack of genetic diversity is a recipe for disaster. Making the economy completely dependent on institutions that all work the same way and have the same motivations (ie, the Republicans' "run the government like a business" mantra) is equally foolish. jajy1979 once put it another way: economies have a lot of moving parts and by cutting off cash flow, you essentially grind the gears and cause the whole thing to come to a halt.
3. We've seen this movie before. This is not, as is so often reported, the "first global recession". The same thing happened in the 1930's and many economists are frustrated by the fact that so many of today's global policy makers are making the exact same mistakes all over again.
4. Yes, we can borrow our way out of this. To get the global economy moving again, those who can afford to borrow heavily should do so. And the nation that is most able to borrow right now is the United States. Currently, the US government can borrow at some of the lowest interest rates in history. That fact in itself blows Republican arguments about the evil of government debt right out of the water. Remember, interest rates are set by the actions of people in the market who know something about economics. If U.S. debt were such a disaster, then borrowing more money would be prohibitively expensive, but it's not.
5. In addition to borrowing, we should also be printing more money. More lubricant for the moving parts, as it were.
Mr. Krugman's latest book is called End This Depression Now!