Krugman in NYT: The Urge To Purge ("Now The Fact is These Ranters Have Been Wrong About Everything")
http://www.nytimes.com/2013/04/05/opinion/Krugman-The-Urge-To-Purge.html
The Urge to Purge
By PAUL KRUGMAN
Published: April 4, 2013 339 Comments
When the Great Depression struck, many influential people argued that the government shouldnt even try to limit the damage. According to Herbert Hoover, Andrew Mellon, his Treasury secretary, urged him to Liquidate labor, liquidate stocks, liquidate the farmers. ... It will purge the rottenness out of the system. Dont try to hasten recovery, warned the famous economist Joseph Schumpeter, because artificial stimulus leaves part of the work of depressions undone.
Like many economists, I used to quote these past luminaries with a certain smugness. After all, modern macroeconomics had shown how wrong they were, and we wouldnt repeat the mistakes of the 1930s, would we?
How naïve we were. It turns out that the urge to purge the urge to see depression as a necessary and somehow even desirable punishment for past sins, while inveighing against any attempt to mitigate suffering is as strong as ever. Indeed, Mellonism is everywhere these days. Turn on CNBC or read an op-ed page, and the odds are that you wont see someone arguing that the federal government and the Federal Reserve are doing too little to fight mass unemployment. Instead, youre much more likely to encounter an alleged expert ranting about the evils of budget deficits and money creation, and denouncing Keynesian economics as the root of all evil.
Now, the fact is that these ranters have been wrong about everything, at every stage of the crisis, while the Keynesians have been mostly right. Remember how federal deficits were supposed to cause soaring interest rates? Never mind: After four years of such warnings, rates remain near historic lows just as Keynesians predicted. Remember how running the printing presses was going to cause runaway inflation? Since the recession began, the Fed has more than tripled the size of its balance sheet, but inflation has averaged less than 2 percent.
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