To: RetiredNow who wrote (881671 ) 8/22/2015 2:17:45 PM From: SilentZ Respond to >What you forget about Krugman is that he was one of the most vocal proponents of CREATING a housing bubble to, in his words, help the economy recover from the Internet Bubble burst of 2001-2002. cepr.net The basis for this absurd claim was a 2002 column on the weak recovery following the 2001 recession. The column notes the weakness of the economy at the time (we were still losing jobs 8 months after the official end of the recession) and attributes it to the fact that the 2001 recession was not a standard post-war recession. It was brought about by the collapse of the stock bubble. Krugman then wrote: "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." It should have been pretty evident that this was sarcastic. Later in the piece, Krugman derides Greenspan for failing to have taken steps to head off the stock bubble, explaining that Greenspan badly needed a recovery: "to avoid awkward questions about his own role in creating the stock market bubble." The last paragraph expresses Krugman's pessimism about the recovery's prospects: "But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense." Note, there is no moaning about how difficult it is to get a housing bubble going. The point was that we needed some additional source of demand and Krugman did not see where it would come from. In this respect, it is worth noting that two weeks later, partly at my prodding, Krugman wrote a column explicitly warning about the dangers of a housing bubble.
