Academic journal article Global Economic Observer

Paul Krugman Wants a Quick End of the Economic Depression 1

Academic journal article Global Economic Observer

Paul Krugman Wants a Quick End of the Economic Depression 1

Article excerpt


1. Krugman's main considerations on crisis and economic recovery

In his book End This Depression Now! Paul Krugman tries to find some solutions to the lasting economic depression, mirrored by a low rate of growth and high level of unemployment. It is obvious that during the last three years (2010-2012) the economy of the most developed countries passed through a disappointing stagnation with a major contribution of austerity policies. But Keynes said that austerity had to be applied during the economic growth not when the economy was decreasing, and based on this idea Paul Krugman pleads for more government spending in order to support private sector and economic recovery.

Paul Krugman has resumed part of his assessments made in his previous book The Return of Depression on Economics and The Crisis of 2008 referring to recent financial and economic crisis. He questions Ben Bernanke optimism about economic outlook expressed in an interview in March 15, 2009 and afterwards and also his view on so called the economy of happiness. From USA to China the most pressing matter is now the high level of unemployment, and Krugman refers to involuntary unemployment and combats with stupid ideas of some American right wing politicians and economists that many unemployed people do not want to find jobs. How many unemployed people exist now in USA? Nobody knows exactly, the official figure was over 13 million in December 2011, (12.2 million in December 2012), compared with 7 million in the fall of 2007, but many people have now part time jobs and this represents a kind of hidden unemployment. In June 2011 Democracy Corps made a survey and found that over 40% of total American families had been affected by the cuts in the number of worked hours, salaries level and non-wage benefits. Long term unemployment is a painful reality and its social effects are extremely negative, especially when it concerns many young and even graduated people. A protracted period of unemployment can badly affect for a long time the vocational career and even the life of many young people.

In 2008 and 2009 the contraction of economy, measured by GDP decrease, was quite impressive and the recovery was slow and limited. In USA the estimation of real potential of GDP made by the Congressional Budget Office at the beginning of 2012 indicated a deficit of 7% in the operating potential of American economy, which means a loss of 1000 billion $ per year and a total loss of at least 5000 billion $. This huge loss signifies goods, salaries, profits not achieved or materialized. For Krugman paying attention mainly to long term perspective is a mistake, because short term difficulties, economic and social, will badly impact on long tenu economic development. The loss of investor confidence, the decrease of funds assigned for education and health, postponing infrastructure projects will have very negative effects on the future economic development. European Union was also seriously disturbed by the crisis and now Southern Member States are facing a lot of difficulties caused by the deficits, public debts and high unemployment. We may see a certain revival of extremist and nationalist movements due to the dissolution of middle class, but their risk is not comparable with that of the totalitarian regimes from 20th century. For Krugman there is a huge human disaster caused by the crisis but there is no excuse for political leaders not to take appropriate measures because we have the necessary knowledge and action tools for solving the economic problems and to end the depression as soon as possible.

After The Great Depression of 30's Keynes noted that we had enough resources but not enough expertise in the field of economics, while nowadays we have even more resources and much more knowledge in economics but we have serious deficiencies or troubles in the organization and coordination of market economy. …

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