I don’t remember worrying about inflation during the 1st stimulus. I remember worrying about deflation because of rising unemployment.
It was the low interest rates that were said to possibly cause inflation if they were kept low too long.
It is ironic that countries like Germany and the UK are implementing fiscal austerity while we here in the USA are doing just the opposite.
Germany’s economy has started to move up and GDP rose at a very high level recently and their unemployment went down to the mod 7% level while we are stuck at close to 10%.
Krugman is of course not impressed.
He says :
“Oh, and don’t tell me that Germany proves that austerity, not stimulus, is the way to go. Germany actually did quite a lot of stimulus — the austerity is all in the future. Also, it never had a housing bubble that burst. And with all that, German G.D.P. is still further below its precrisis peak than American G.D.P. True, Germany has done better in terms of employment — but that’s because strong unions and government policy have prevented American-style mass layoffs.”
He then insists that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn’t applied on a sufficient scale. And we need another round.