Cutten, while i am in agreement with the tenor of your interesting remarks, i would like to suggest that there is a big difference between the Japanese economy and the US. Whereas the Japanese Government has spent wildly at times, the nation overall is a nation of savers and scrimpers, the US on the other hand has been a nation of profligate borrowers and spenders -- both its government and citizens. A Keynesian approach in Japan is against what is in the best interest of savers, who are harmed by deficits and eventual inflation. In the US, however, deficit spending and inflation is, in the short run, a far more attractive proposition, and certainly no one could argue that it is politically expedient. I wonder what role the essential differences in character of these two nations might play in the success or failure of Keynesian economics? Of course, in the long run, spending that wildly outstrips productivity can not be sustained. The question in my mind is whether the US economy can succeed in rescuing itself using a Keynesian approach; yet return ultimately to a balance between productivity and consumption. Or is it too late for that? I wouldn't rule out the possibility that a Keynesian solution could work in the US even though it seemed to fail in Japan.
Zimbabwe's finance minister is also a genius. He has made everybody a millionaire there. He should be awarded the Nobel Prize next year.
Paul Krugman did make a huge breakthrough in econometrics if you carefully read "Revenge of the Glut". He reduced one variable from economics - Savings. Those not in the know may think one variable is no big deal - but it is tsunamic in econometrics. His singular ingenuity is he sees a new definition: Savings == Capital Account Deficit. See his genius?
Krugman succinctly and accurately predicted not only the collapse of the housing market, as some others did, but he spoke in detail about the knock on effects that would result from that collapse, and in great detail, and his predictions as to those effects have all come to fruition. Like I said, I vehemently disagree with his opinion that stimulus needs to be much larger to counter this crisis (I happen to think the stimulus package was a bailout of inefficient state, county and city/village/township governments, who seem to think they're immune from belt tightening and cost cutting measures), but give the man credit for some of his excellent calls.
Krugman also accurately identify the real culprits of this crisis: the wealthy, Bush dropped taxes so they pay less!! what an outrage!! they should be taxed to death to pay the good guys salaries like Geithner's and Ben Bernanke, not to mention Fannie Mae's executives. They are all the evil republicans' victims and Bush is the devil according to Paul "Nobel genius" Krugman.
Great post. The relationship between savings and capital formation has been completely forgotten. Governments today actually believe currency inflation is an legitimate substitute.