As Albert Einstein said: "Any intelligent fool can make things bigger and more complex... It takes a touch of genius - and a lot of courage to move in the opposite direction." "Great spirits have always encountered violent opposition from mediocre minds" All economics based on Keynes is mediocre.
So in other words you disagree with virtually every tenant of Krugman's philosophy but "like and respect him." Based on what criteria?
Yes, Krugman is a socialist. Markets are zero sum. If every Central Bank turns issuer then who are the buyers of debt? Generally institutions. So what occurs during periods of massive government debt? The issuance by Big Brother sucks up the demand and other borrowers are left twisting in the wind. Krugman believes in robbing Peter to pay Paul. No pun intended. Then again, perhaps the perfect pun.....
Keynes was one of the first to show that what is good for an individual(saving) can be disastrous when it happens in a MACRO scale, because some people's saving decreases other people's income, so economy can go down the tubes. Thus giving birth to macroeconomics, give the man credit when he deserves The problem comes when folks use his great ideas for political purposes
The irony here is ripe. Once the United States of America was made up primarily of people who believed both in independence and nationalism which are obviously mutual pursuits. Europe fought WWI trying to come terms with how it would be organized. Post WWII, Europe in good times sought centralized Gubmint while still cowtowing to the political elements within its boundaries. Post WWII, the nationalism and independence of the USA which was once cherished has been replaced by a dependence on Gubmint both centralized and globalized in nature. We have been left with only the pretension that we are an independent nation when our Secretary of State gets on her knees and begs the Communist Chinese to keep covering our debt. And when the economic chickens came home to roost, the American people have found themselves at the mercy of a bunch of know-nothing nincompoop leaders. The USA has went over to the dark side. Europe on the other hand, which dearly loves centralized Gubmint in the good times, revert to old ways of organization such as language and culture when put under economic stress. Krugman so full of himself as his dream of centralized Gubmint coming to absolute power is realized in his native land, feels compelled to give lectures to the Europeans for not swallowing the final and lethal dose of medicine that they have so long been addicted to.
All that is misleading. First, there was no MACRO increase in savings that led Keynes to his stupid theory. Also Savings is a component of consumption. You people talk like savings=burning money. Saved funds just change hand in the economy, they do not sit idle or disappear. SAVINGS=FUTURE CONSUMPTION I give him the credit for being a mediocre economist whose foolish ideas and lack of economic understanding made him a tool for politicians which remains until today. "Big Father Government".
Europe still has a much more extensive and deep welfare system than the US; unemployment benefits are much more generous, labor laws are much more rigid, health care is available to all, regardless of any factor, state-funded pensions and other retirement benefits are much more generous. The real irony is that these benefits are nearly non-existent in the centrally planned economies of China and Japan (yes, my friends, the Japanese economy is the product of central planning, with the post-WWII Japanese government telling Honda and Toyota to make cars, Sony and NEC to make electronics, and Mitsubishi to start a keiretsu spreading out into banking, industrial goods and chemicals). This is why Japanese and Chinese citizens are getting slammed without state support in their export-slump malaise, with Chinese workers moving back to the family farm and Japanese living in tent cities in Kyoto and Tokyo.
Why is the economy "going down the tubes" disastrous? Unproductive or foolhardy economic activity can only be replaced by productive and wise economic activity through the total annihilation of the former. This means huge swathes of people getting fired, firms going bust etc. Without this the economy cannot adapt. Without adaptation you end up like the GDR, USSR, N Korea etc. Thus the economy going down the tubes by people saving is not only not disastrous, it is *absolutely essential to prosperity*, and the only way for an economy to get much, much richer in the long run. Avoiding short-term "disaster" means guaranteed long-run disaster. This was widely known in the 19th century, let alone Keynes's time (e.g. Schumpeter popularized this notion). Bear in mind also that savings are the sole source of investment capital, which is the only source of funding for entrepreneurs, who are the main source of job and productivity growth in the economy. One should note that Keynesianism was tried to the letter in Japan post 1990, and the result was the longest economic stagnation and deflation of any advanced economy since the Great Depression. Keynes' ideas failed the test of the real world. Furthermore, advice derived from a theoretical construct is of no use whatsoever if it cannot actually be implemented in the real world. A political system which relies on humans always being good and nice is useless because humans will not always be good and nice. An economic policy prescription which relies on government being wise, impartial, and consistent will never work because no government has ever possessed those qualities. Thus Keynes ideas are not only arguably refuted since a few months after he published them, but even if you think he is correct, they are incredibly unlikely to be implemented properly by any government. And the only time a government implemented them to the maximum one can realistically expect, the result was utter disaster. I still remember my Keynesian economics professor in the mid 90s, a guy who had advised in UK politics for 2 decades, admitting that so far the Japan experience was proving Keynesianism was not working. His words were basically that they were following textbook Keynesian policy and it had not produced any results. Another 7 years passed, same policy, same lack of results. Now its 2009, 19 years of Keynesian policy and virtually no growth, and huge government debt with nothing to show with it, bridges to nowhere and white elephants galore. This is success? Keynes' policies have failed every test they have ever encountered. By the standard of real world results, he is the 2nd worst economist of all time (Marx being the worst). If he was a trader he would have busted out time and time again with this level of performance (ironically he was a better trader than economist).
Krugman got totally owned by the ECB guy. The key point is the last one: "Krugman concludes that countries such as Spain would have been better off without the euro. Again, in theory he has a point, since devaluing oneâs currency might seem attractive in the current circumstances. In practice, however, when global trade grinds to a halt and the financial market is in distress, the depreciation of a currency can trigger a loss of market confidence in the country, which can further aggravate the economic and financial crisis. This is what happened in Italy in 1992-93, for example. Krugman should travel to those European countries which do not yet have the euro and would really like to introduce it as soon as possible; he would not fail to notice that the reality is very different from textbooks economic theory." It is pretty incredible for someone to claim that the EU countries outside the Euro are doing better than those inside it. Compare Hungary to Slovakia, for example - the latter has the Euro and is suffering far less than the non-Euro Hungary. The European experience in the 1990s shows the dangers of numerous competitive devaluations in a weak currency system. Krugman is living in an ivory tower and completely ignoring what is happening on the ground - a total meltdown in the non-Euro Eastern European currencies and economies.
Yes, this is one of the common critiques of the 'paradox of thrift' and it does make sense. However, stop bashing Keynes, pls, folks. He was a genius (just like Marx) for his time and he advanced our understanding of economics a lot, even with the things that subsequently were demonstrated to be incorrect. It's like saying Darwin was the worst ever biologist, because we now don't believe that his theories are perfectly correct. All science is incremental, even economics, the dismal bastard child of the scientific method.