Paul Krugman: Lost Decade, Here We Come

The Business Insider ^ | 6-6-2010 | Henry Blodget

[blam]

Paul Krugman: Lost Decade, Here We Come

Henry Blodget
Jun. 6, 2010, 9:49 AM

Paul Krugman continues to argue that a return to "austerity"--an effort by world governments to reduce the massive deficits that have followed the financial crisis--will bury the global economy.

Just as bad, Krugman says, austerity will cause deficits and debt to balloon even more, because tax receipts will plummet.

Thus, Krugman views the G20's new focus on reducing deficits as a disaster:

The deficit hawks have taken over the G20:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” it added. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”.

These words were in marked contrast to the G20’s previous communiqué from late April, which called for fiscal support to “be maintained until the recovery is firmly driven by the private sector and becomes more entrenched”.

It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.

But don’t we need to worry about government debt? Yes — but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts...

[snip]

In short, we think the pain is unavoidable. It's just a question of what form it comes in and when.

[snip]

[Soul of the South]

Another lost decade is coming. With the exception of Wall Street investment bankers and government workers, standards of living declined for Americans in the first decade of the 21st century. The second decade could be worse.

[Canedawg]

“standards of living declined for Americans in the first decade of the 21st century. The second decade could be worse.”
*****

Welcome to wealth redistribution. Ain’t it a gas?

(Yep, I have gas over this.)

[DuncanWaring]

There’s a lot of books on Kondratieff waves out there; got any particular recommendations?

[Travis McGee]

No book recommendations, just google around the internet for essays.

[Republic of Texas]

Sounds like a good tagline.

[newfreep]

I “borrowed” that from some economist named Friedman - you may have heard of him?

[Lancey Howard]

Over the past 30 years or so, at an ever-doubling pace, Americans have run up credit cards, high LTV mortgages, new car loans, and personal loans (for big-screen TVs and a zillion other toys) all for the purpose of living high on the hog today with the idea that it will be paid for sometime in the distant future.

Government has operated in the same way.

How could anybody have thought this scheme could be sustainable forever?
And Krugman thinks the answer is to double down on the same scheme??

It is my opinion that the time to pay the piper is closer than most people are willing to believe.

[Travis McGee]

How could anybody have thought this scheme could be sustainable forever? And Krugman thinks the answer is to double down on the same scheme??

Yes and yes.