Wikinvest Wire

Krugman's plan for the Fed to save the world

Friday, December 11, 2009

Sometimes you have to wonder whether economist Paul Krugman has ever once given any serious consideration to the idea that the economic system that has produced such apparent prosperity over the last few decades might, in fact, be severely flawed, these defects being largely responsible for the mayhem we've seen in the last year or two.

Based on his most recent thoughts about how, if the central bank would just print more money, a much needed "jobs recovery" might be engineered, apparently not.

I don’t think many people grasp just how much job creation we need to climb out of the hole we’re in ... My back of the envelope calculation says that we need to add around 18 million jobs over the next five years, or 300,000 jobs a month ... someone has to take responsibility for creating a lot of additional jobs. And at this point, that someone almost has to be the Federal Reserve.
...
The most specific, persuasive case I’ve seen for more Fed action comes from Joseph Gagnon, a former Fed staffer now at the Peterson Institute for International Economics. Basing his analysis on the prior work of none other than Mr. Bernanke himself, in his previous incarnation as an economic researcher, Mr. Gagnon urges the Fed to expand credit by buying a further $2 trillion in assets. Such a program could do a lot to promote faster growth, while having hardly any downside.
Hardly any downside, that is, unless we're in the middle of a long deferred, fundamental change for the U.S. economy in which the credit expansion seen at all levels over the last few decades - government, corporate, and personal - can no longer produce growth.

In that case, a few less trillion dollars might make digging our way out of this massive hole a lot easier in the years ahead and the entire nation might learn a painful, but much-deserved, lesson about the limits of credit expansion.

It seems the public's reluctance to embrace even more massive deficit spending and money printing next year on a scale that would top the new world records set this year are a complete mystery to Krugman while protests from regional Federal Reserve presidents and centrists in his own party are seen as nothing more than obstructionism. Amazing...

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10 comments:

Anonymous said...

Don't know why this administration wouldn't support such a proposal. It makes perfect sense if you believe bailing out the UAW and public employee unions = job creation.

Anonymous said...

Now job creation should be the Fed's job?!? Well if that is true then it is starting to seem to me that our Federal Government is more and more abdicating to the Fed more and more responsibility. Soon we will have a hollowed out shell of a government only to be replaced by the more totalitarian Federal Reserve. Slippery slope I know, but still..

The Real Deal said...

So Paul has gone nuts too. Along with just about every institutions in DC.

Jobs are created by people and businesses, mostly in the private sector. They first created something useful and profitable to do, then they hire people to do it.

The Fed creating jobs? Yes, but only when the Fed is terminated.

beatbox32 said...

So apparently we're a bunch of nutcases for supporting a Fed audit: http://bonddad.blogspot.com/2009/12/why-audit-fed-movement-is-equivalent-of.html

Tim said...

I just got to Rosenberg's commentary today on this same topic:

"Krugman’s solution (based on work from Joseph Gagnon, a former Fed staffer, now at the Peterson Institute for International Economics) is for the Fed to expand its balance sheet by another $2 trillion (effectively double it). It is with this in mind that we retain an overall bearish stance on the dollar and constructive posture on gold."

Anonymous said...

I remember seeing a graph of returns for every dollar borrowed. It started out being 4 dollars of return in the 40's I think, and it has diminished every year. I believe in the last few years it has reached a negative return for the first time ever. Which certainly intuitively makes sense - how many vacant malls, houses, plants are there?
To quote a Keynsian, "if only we had men digging holes and men filling them in" ...we would all be tired, dirty, and starving...cause somebody has to do something USEFUL.

Anonymous said...

Krugman thinks the US can't stop borrowing until all significant overseas nations stop saving too much. He doesn't think about the future disaster all this debt will cause the US. He's like a chess player that refuses to think more than one move ahead as a matter of policy. He just can't understand where his bizarre policies are leading.

fish said...

How come every time Krugman opens his trap I'm reminded of the Steve Martin bit about the steps required to be a millionaire and never pay taxes.

First, get a million dollars.

Since the end result is the same and since Keynsians are famous for stating that the work need not have any productive purpose....just get the money moving...why fuss with all this "jobs" nonsense? Why not just mail out checks (direct deposit for me please). There would be so much more time for shopping.

I'd suggest being wary of listening to a man who states openly that his two biggest influences were a science fiction series and the works of a man so impatient to get back to his boyfriend that he couldn't think through the consequences of providing unlimited sums of money to British politicians!

Hey Paul, the bank called. They said you were becoming a real embarrassment and that they want their "prize" back.

Anonymous said...

The value of the dollar is amazing when you compare it to the devaluation of the Nobel prize. Krugman, Obama, Arafat, Gore. That's a fecal matter prize if there ever was one.

John S said...

That 18 million job "hole" assumes we don't lose another 5 million jobs before growing unemployment stabilizes in 2011. But I can only think of one president that has created 18 million jobs in 5 years. That would be FDR, who created the jobs by NOT warning the commanders at Pearl Harbor that a fleet of Japanese carriers were cruising their way.

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