The Krugman quote was from an August 2002 editorial in the NY Times and can be found in its entirety at this link:
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html
I think you'll find that it is even worse than you imagine.
Re: Dear Government: Make Do With Less
Scott Raynovich
5/31/2011 10:46:24 AM
What I don't understand is how is going back to 2006 spending levels "austerity?" We've doubled the national budget in something like five years. What exactly do we have to show for it? As I said before, it's not like a Congressman shows up at my doorstep with baked muffins every morning.
The problem with Krugman is that he always thinks some form of government manipulation of the economy is the solution, when in fact all we've proven over the years is that government manipulation screws up the economy (the government helped create the housing bubble, e.t.c.).
A SCARY EXCELLENT point, Fred! When was that in 2001? Pre 9/11, I assume. Pre GWB exhorting us to spend as our means of patriotism?
It's really hard to believe that Krugman said we should create a bubble to replace a bubble. That really strikes me as irresponsible. Do you know the context of his quote?
Well I think that before we get too carried away about Paul Krugman we should re-read this paragraph from one of his 2001 editorials that appeared in the NY Times:
"The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. 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."
It seems to me that Krugman got his wish and we are the worse for it.
Scott McCaig--
I'm a big fan of Paul Krugman, too, and you gave voice to some of the same things I was thinking. I mentioned the Paradox of Thrift in my post, but your macro points about how austerity programs are NOT working for European countries underscore how the paradox works on a grander scale, too.
I'm not smart enough to win a Nobel Prize in Economics, but I sure am smart enough to listen to guys like Krugman and Stiglitz who have!
Re: Making Do
Phoenix
5/30/2011 11:53:38 AM
When I think of making do with less I remember the times when we did not really have the technological advancements we have today to help us through. Today we have entertainment in various forms whereas one or two decades ago we didn't really have much of a choice. Today we have the iphone to find directions and do searches for information. Those days we relied on news papers and books as sources of information. Today if we loose our iphone we would feel like we lost our right hand whereas just a few years ago the iphone didn't exist but we still managed.
I feel we sometimes just grab on to things that we may not really need just because it is the latest in technology and everyone seems to need one. It most probably would be the more costly option for a need that can be satisfied by much less. I am not saying that technology is bad just that the way we use it for everything we need and don't need indiscriminately is the problem. The same applies to the government.
It is a matter of trying to figure out alternatives to costly options. Sometimes those alternatives might even be much better than the initial costly option. For example buying a child a plastic toy house with facilities might not bring him or her the pleasure of making their own house with their parents in the backyard with recycled material. Well like you said Noreen it can be strangely satisfying to mow your own lawn rather than having someone else do it for you. Alternatives can have their own unexpected benefits along with cost savings. Let's hope that the government thinks seriously about opting for such alternatives.
Noreen:
Great post! There have been a number of times in my work life when I was forced to make do, adapt, and alter my lifestyle due to a reduction in income. At the time it was hard, very hard and in looking back I sometimes wonder how we made it.
However, like you eloquently stated, we set our priorities and got by. To be honest, it made us stronger as a family. That said, I hope those hard times are finally over.
The nation faces a much stiffer challenge. It must also set priorities and make do with less. These decisions must be made by people whose livelihoods hang in the balance every two to four years. Cost cutting will anger many affected constituencies. Politicians by nature don't like to do that.
When we face difficult times, the only people we might anger are our spouses, our children and some debt collectors. My son can't vote me out of office if I decide I won't pay his college tuition or his car insurance. A Congressman or a Senator faces a potential humiliating defeat on Election night depending on how many people in his district are negatively impacted by his votes to decrease the federal deficit.
It will take a lot of courage to tackle the deficit. Let's see if our leaders are up to the task.
Scott,
What qualifies as an austerity program? Returning to the spending levels of 5 or 6 years ago would make a substantial different in the deficit. Is that an austerity program?
And if cutting waste is fine, is the sum of government waste a 1 or 2% problem, or is it much, much larger for the US federal government?
Re: Dear Government: Make Do With Less
ProfR
5/28/2011 9:34:11 PM
You are right. The problem is that politicians are often rewarded for spending more in their states but do not have an incentive to cut spending or balance the budget. How do we change this?
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