Paul Krugman- Greenspan: No Saving Grace

Sorry about radio silence — family stuff and textbook deadlines fell in on me. But I would like to get in something about Greenspan’s new book.

It is, you won’t be surprised to learn, a really terrible book on multiple levels. No acceptance of responsibility for anything; he retails the same old Big Lie about how Fannie and Freddie somehow coerced Wall Street into making bad loans; etc., etc..

But I wanted to take on one point in particular: Greenspan thinks he has discovered a new law: transfers to individuals, even if fully paid for with taxes, reduce national savings one for one. You can bet that this claim will soon be popping up on the right as an established fact.

What drives Greenspan’s conclusion is mainly the sharp drop in overall saving during the Great Recession, combined with a temporary spike in transfers as a share of GDP, partly because of unemployment and food stamps, partly because GDP fell. But he wants us to see it as a long-term phenomenon, and of course as a reason to weaken the safety net.

The obvious answer is to look cross-country: European nations have much bigger welfare states than we do; do they have lower savings? No.

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http://krugman.blogs.nytimes.com/2013/10/24/greenspan-no-saving-grace/?_r=0