Tuesday, May 5, 2009

Krugman Has A Change Of Heart…Sort Of

The doctor has spoken. “There are indeed indications that the economic plunge that began last fall may be leveling off.” So instead of years of negative business growth ahead of us, we only have to worry about years of deflation and stagnant growth, ala Japan.

Mind you, this is the same Paul Krugman who only four months ago declared, “Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.” What changed his mind in sixteen short weeks? As if - “President Obama and his economic advisers seem to have steered the economy away from the abyss.”

Seem to have steered the economy away from the abyss? Exactly how have they managed to do that, considering only about 10% of the $787 Billion stimulus money passed last February has even been spent? And of those funds, a large chunk of it went right back to the states to cover Medicaid budget shortfalls.

How does Krugman propose avoiding a repeat of Japan’s lost decade? “We need more: more stimulus, more decisive action on the banks, more job creation.” Essentially, bigger government.

It seems to me the problems our economy will face won’t be those of deflation and stagnation, but rather inflation and stagnation, or stagflation. Inflationary pressures will almost certainly increase largely because of the very same government spending and “job creation” programs Krugman advocates.

My advice to Republicans – regroup, refine, and respectfully add voice to the opposition, but above all sit tight. While the country may appear to be lurching left, Americans are fickle voters when it comes to their wallets. And when the Democrats overreach, which it appears they may, Republicans will need to step in with ideas – 2012 isn’t that far away.

1 comment:

The Conservative Wahoo said...

Where is government going to finance its expansion? The credit markets. Where will the capital to fund expansion for private industry (what's left of it) come from? Capital markets. Clearly there will be inflationary pressures on interest rates as demand for capital increases.

Let's not forget the fact that the Fed had the printing presses fired up extra hot over the past few months. What do we call too much money chasing too few goods? Inflation. Saint Paul is wrong, GG is right. Inflation is more likely than deflation.

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