Coyote Blog

From the AZ Republic, Paul Krugman is claiming that the administration's stimulus spending, which I don't think has even reached $100 billion of the programmed $1 trillion, has officially averted another Great Depression:

Aggressive stimulus spending by governments helped the world avoid a second Great Depression

but full economic recovery will take two years or more, Nobel Prize-winning economist Paul Krugman said Monday....

"We have managed to avoid a second Great Depression ... but full recovery is at least two years and probably more," Krugman said.

This is just a pure joke.  First, the total additional spending was tiny compared to the size of the world economy.  Second, almost none of the stimulus money has actually been spent -- even the article goes on to say that "Most of the money will flow in 2010."  So is Krugman arguing that just the notion of stimulus spending, without the actual spending, has saved us?  Third, most of the early projects were typically stupid, whatever governments could ram through their procurement processes in a short period of time.   I challenge even the most ardent Keynsian to argue this stimulus was truly structured to target underutilized resources, or whatever their theory is.  I would love to see Krugman stand up in front of a doctoral committee and justify this wild-assed supposition with actual facts and analysis.

But the even more incredible unproven (and in fact entirely non-verifiable) part of the statement was that we were even headed for a second Great Depression anyway.  Many of us from the sidelines said that this looked like a recession similar in magnitude to that of the early 1980's, and in fact that appears to be exactly what we got.  The whole "second Great Depression" meme is merely a giant straw man used first to stampeded ill-conceived spending legislation through Congress with little scrutiny and now to provide a fake alternative against which Obama and company can declare victory.   Krugman is so far in the tank, its impossible for me to even think of him as an economist any more.  The Nobel Laureate who now retails non-verifiable claims.

The fact is that this was a normal recession blown out of proportion first by the Bush and later by the Obama administration.  From the very beginning, it looked much like the recession of the early 1980's or the bank crisis of the early 1990's, and it recovered for the same reason - there are fundamental strengths in the economy.  In fact, the length of the Great Depression was in fact the aberration, caused more by FDR's wild proposals (the worst of which was the National Industrial Recovery Act) which tended to dampen the investment that normally picks up at the bottom of the cycle to take advantage of reduced asset values and input costs.

Other Assertions by Krugman

Interestingly, economist Krugman appears to think that the problem with the financial system is that people can make money in it.  Really?  Gosh, I thought people just invested billions of dollars for the warm feeling it gives them:

He said there was a need to restructure the global financial system and impose tighter regulations to avoid a repeat of the economic crisis, but expressed concern that the momentum for reforms appeared to be easing.

"We do not have the political will to do that just yet ... I suspect clever people can still make a lot of money from the financial system in the next few years," he warned.

I also thought this was funny, in the context of the recent financial mess.  He says:

"Over-reliance on self-regulation is a mistake," he said. "Global regulators should err on the side of investor protection and financial stability rather than rely on a 'buyer beware' regulatory regime."

I must say it is surprising to see Krugman saying this.    Let's think about mortgages, the primary driver of the recent financial difficulties.  In mortgages, the investor is the bank making the loan.  So is Krugman advocating for more protection of mortgage lenders and their insurers like AIG against home buyers who take their money and then don't pay them back?

Update: Oh, and TARP never bought any troubled assets, just was used to bail out a few selected politically connected companies.