Paul Krugman, and co-author Robin Wells, has trashed the latest missives from Nouriel Roubini and Raghuram G. Rajan as missing the point on what the U.S. economy needs in order to escape this economic malaise in the New York Review of Books.
Krugman’s position is obvious: he’s pro-fiscal stimulus as a means to escape our unemployment crisis.
Austerity, to Krugman, is maddening and that’s why he dismisses Rajan’s book outright, for calling for an immediate increase in interest rates.
His critique of Roubini and Mihm’s book is a little more complex, and hits home that they’re too weak to advocate for the thing their book best advocates, fiscal spending to return the U.S. economy to full employment.
But Krugman and Wells love Richard Koo and his balance sheet recession theory, advocated in The Holy Grail of Macroeconomic: Lessons From Japan’s Great Recession.
Koo calls Japan’s deficits necessary to fight the country’s economic malaise, saying things would have been much worse, maybe even a depression, if the stimulus wasn’t there. They nitpick Koo’s analysis of the long-term inflation threat, but more or less agree with his pro-fiscal stimulus sentiment.
But Krugman and Wells are pessimistic, they don’t see the political environment of the U.S. being able to handle the call for fiscal stimulus.
But, shouting into the wind, Krugman and Wells call for a bevy of new stimulus measures:
- Spend more on infrastructure, and call your opponents out if they stop you
- More tax cuts, even if this isn’t the best option
- Allow mortgages to be covered by personal bankruptcy proceedings
- Allow Fannie and Freddie to engage in mortgage refinancing (H/T Bill Gross)
- Ratchet up the rhetoric on China (and maybe even German)