The Daily Parker

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The Lesser Depression, summarized

Paul Krugman takes a quiet moment to meditate on the economy:

If you think the problem is that wages are too high, your solution is that we need to meaner to workers — cut off their unemployment insurance, make them hungry by cutting off food stamps, so they have no alternative to do whatever it takes to get jobs, and wages fall. If you think the problem is the zero lower bound on interest rates, you think that this kind of solution wouldn’t just be cruel, it would make the economy worse, both because cutting workers’ incomes would reduce demand and because deflation would increase the burden of debt.

If, on the other hand, you believe that the problem lies in a shortfall of demand due to the zero lower bound, you believe that government borrowing needn’t drive up rates, because it puts unemployed resources to work; that monetary expansion won’t be inflationary, because the money will just sit there; and that fiscal austerity will be strongly contractionary.

I leave the adjudication of these competing claims as an exercise for readers.

After four years of a depressed economy, and what appears to be the economic hobbling of the entire Mediterranean, there might be some evidence to support one of these views.

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