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Politics : View from the Center and Left
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To: Mary Cluney who wrote (113529)6/16/2009 2:47:51 PM
From: Steve Lokness  Read Replies (1) of 541797
 

I don't see where Krugman wanted to create a bubble:

Well right, you don't see bubbles forming, that's what makes them bubbles. But of course in hind site that is exactly what Krugman was proposing - a new bubble to get us out of the last bubble pop. In fact he does say he wants to create one - never understanding that one was already forming. He felt in the Fall of 2002 (when we were far into the bubble already) that we needed a housing boom to prevent the economy from falling into a double dip recession. By his own words he had no idea what was being created - the bubble. Here is what Krugman said in his editorial of August 2002; To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

The quote you provide doesn't mention that business had stopped spending and Krugman wanted something to replace it - so that we didn't have a double dip recession. He wanted the consumer to spend more, much more, as the above quote clearly says. That bubble kept forming of course and people got over extended and housing prices got way too high. The Bubble! Then what Krugman did not see - the consequence of the exact things he was proposing. "Soaring household spending" - you just can't do that when the public is already overextended. That is exactly what got us in trouble - what Krugman was proposing.

steve
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