Krugman Explains Our Economic Slump
“Shouldn’t we expect a scramble to put forward plans for promoting growth and restoring jobs? Apparently not.” Paul Krugman is critical of backward-looking economic theorizing.
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“So what’s the answer? In the short run, the only way to avoid a deep slump when almost everyone in the private sector is trying to pay down debt simultaneously is for the government to move in the opposite direction—to become, in effect, the borrower of last resort, issuing debt and continuing to spend as the private sector pulls back. … The surge in budget deficits around the world between 2007 and 2009 was arguably even more important than the financial rescue in keeping the real estate bust from triggering a full replay of the Great Depression.”
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