I don't think that Krugman can be accused of that though. But he may have failed to carry the argument to its logical conclusion: if the clear path to recovery is through devaluation, it should increase interest rates and therefore there must be another factor in the data.
Now, for the record: -I have long been against the high peacetime debt and deficits in any country, English-speaking or otherwise. I reckon that sustainability should be a major target of any policy.
-Also, debt (or deficit) as a % of GDP is a silly metric, since it takes no account of the assets part (plus GDP is a poor metric). When the French Government sold France Télécom shares, which gave 7.5% in dividends, to pay back some debt with a 3.5% interest rates, I screamed.
-I reckon that right now is akin to wartime in economic terms, and that indeed it is not the right moment to worry about deficits. Especially not those who kept saying that they didn't matter when they would have been comparatively easy to reduce.
-That being said, the situation is made a lot worse by the many years of deficits when we should have had a surplus. Since we certainly shouldn't cut spending we should raise taxes.
-Before I am accused of being Hooverian, I'd like to point out that there can be a lot of tax increases that will have zero effect on consumption. Taxation has become at best flat, and sometimes regressive at the top even before taking VAT into account. Taxes (even small ones) on financial transactions would similarly have no effect. Taxing externalities would actually improve things.
-There is (was? the longer we wait the less efficient it will be) a wonderful oppportunity for increased state spending that would actually be a money saver in the medium run: all investments that will cut down costs later, particularly energy costs. Plus a lot of that would have meant work for the depressed construction sector, therefore having a very high multiplier effect.
Then, having done that, I would seriously try to reduce debt when growth returns, but not by selling assets. Rather, by taxing fairly (why on earth should inheritance not be taxed a LOT? Why should capital revenue be exempt? And if corporations want to have moral person rights, they should be taxed based on their revenue, not profits), and in particular by taxing externalities. I think that huge inequalities ARE an externality, hence... Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
why on earth should inheritance not be taxed a LOT?
Because that's how the class of natural masters of the universe propagates down bloodlines.
Yet I have heard no public discussion here of holding down real estate prices and mortgage debt by increasing the land tax. Politicians avoid this because taxpayers react negatively to any kind of a tax rise. The distinction between economically inefficient and inefficient taxes has been lost from public discussion. A revenue neutral tax shift - lowering sales taxes and income taxes on wages by the amount that property taxes are raised - would not take in any more tax revenue than now. But it would levy taxes in a way that holds down property prices. A positive financial effect would be to leave less revenue available for banks to capitalize into interest charges. Holding down housing and real estate prices - and debt - would lower the cost of living and doing business. This would make the economy lower cost. That should be the aim of every economy - to minimize the cost of living and doing business.
Michael Hudson's Talk at Customs House in Australia Courtesy of Steve Keen and other via his blog DebtWatch.
Courtesy of Steve Keen and other via his blog DebtWatch.
He surely counsels bigger deficits and more spending, which he believes will NOT have inflationary effects.
He is still much more worried about deflation.
So, I don't think the criticism about varied ways of addressing the debt problem applies to Krugman.
Krugman firmly believes that we can GROW.
