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Krugman Actually Has It Right

29 June 2010 No Comment

Keynesian economist Paul Krugman recently stated in his latest column that he fears we’re in the early stages of a third depression.  As I’ve stated a number of times, I too believe we’re in the early stages of a depression.  I believe the current economic downturn will last years maybe more than a decade.  The current economy will result in high unemployment, high foreclosures and a massive downshift in standard of living here in America.  I believe the American economy is topping out, maybe for good.

Where Krugman and I differ on our opinions both always and in his recent column is Krugman believes there is a way out through government intervention.  He blames the latest push towards austerity as what is going to cement the global economy into a real depression.  I completely disagree that the austerity is the cause of a depression.  The previous 10-20 years of monetary policy and of encouraging massive debt is the cause of the depression.

With that said, I won’t say that austerity is the end-all solution.  Unfortunately, there is no end-all solution, and Krugman is right in that austerity will cause more pain.  My position is that the pain that austerity will cause will be less painful than the ultimate collapse of we continue down the road of stimulus, more debt, and more government.  That essentially sums up my opinion on the economy: there is no easy way out.  Both continued stimulus/bailouts and the approach of austerity will result in severe pain; but, less pain now is better than more pain later.  In that regard, Krugman has it completely wrong.

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