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Friday, September 07, 2012

'What Krugman & Stiglitz Can Tell Us'

Hacker and Pierson on Krugman and Stiglitz:

What Krugman & Stiglitz Can Tell Us, by Jacob Hacker and Paul Pierson, NYRB: Five years after the onset of the financial crisis that badly damaged the US economy, the nation remains mired in chronic joblessness. The unemployment rate, stubbornly above 8 percent, actually makes the situation look better than it is. Many millions have given up looking for work and no longer figure in the statistics. Long-term unemployment remains at levels unseen since the Great Depression. Young Americans are entering the worst job market in at least a half-century. For both the long-term unemployed and new job seekers, this sustained absence from the workforce will have permanent effects on both their earnings and their well-being. And not just theirs. We have all lost, and continue to lose, from the prolonged mass idleness of potentially productive workers.

Yet Washington is stuck in neutral. Worse than neutral; it is in reverse. ...

Against this backdrop, no book could be more timely than Paul Krugman’s End This Depression Now! Since the crisis began, Krugman has argued with consistency and increasing frustration that the United States has become caught not in a normal recession, but in a “liquidity trap.” Since interest rates are already at rock bottom, normal measures, such as easy credit, won’t work, and expanded government expenditures must play a central part in boosting anemic demand. Otherwise, the efforts of private citizens to pay down debts laid bare by the financial crisis will continue to hold the economy back.

To Krugman, this is all the more regrettable because it is almost wholly preventable. We know what to do, he argues: increase public spending and make it clear that monetary expansion will continue until the economy fully recovers. Krugman advocates greater federal aid to state and local governments, as well as an aggressive effort to relieve private mortgage debts. He also argues that the Fed has been too timid in setting higher inflation targets to restore expectations of growth. ...

In this indictment, Krugman is joined by another Nobel laureate economist, Joseph Stiglitz, whose claims are much more sweeping than his. In an argument that dovetails with those of Occupy Wall Street protesters, Stiglitz insists that the huge and growing divide between the richest 1 percent and “the 99 percent” is not just one concern among many, but the defining characteristic of a thoroughly sick economy. ...

The reason, according to Stiglitz, is that the vaunted American market is broken. And the reason for that, he argues, is that our economy is being overwhelmed by politically engineered market advantages—special deals that Stiglitz labels with a term familiar to economists: “rent-seeking.” ...

Much, much more here.

    Posted by on Friday, September 7, 2012 at 10:37 AM in Economics | Permalink  Comments (77)


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