Paul Krugman Right and Wrong

http://www.nytimes.com/2013/01/07/opinion/krugman-the-big-fail.html?_r=3&

In this essay in the New York Times dated 6th January 2013 Paul Krugman explains very nicely why austerity does not help and is in fact dangerous.

In that regard he is confirming everything that I have written right from the very start of the European Crisis.

I might say I was right about Cyprus too - but everyone was right about Cyprus except the people who made it happen.

BUT Paul Krugman is still clinging to the idea that the Obama Stimulus was right, not half right.

He writes:
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At that point governments needed to step in, spending to support their economies while the private sector regained its balance. And to some extent that did happen: revenue dropped sharply in the slump, but spending actually rose as programs like unemployment insurance expanded and temporary economic stimulus went into effect. Budget deficits rose, but this was actually a good thing, probably the most important reason we didn’t have a full replay of the Great Depression.

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He has not recognised that a bigger stimulus would not have saved the day because properties were still over-priced and low interest rates can only be temporary.

Unlike what he wrote at the start of the essay, economists do not have all the right tools at their disposal.

But I liked all the rest of his essay - it was very well put and totally fair comment. Here is some more:

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But it all went wrong in 2010. The crisis in Greece was taken, wrongly, as a sign that all governments had better slash spending and deficits right away. Austerity became the order of the day, and supposed experts who should have known better cheered the process on, while the warnings of some (but not enough) economists that austerity would derail recovery were ignored. For example, the president of the European Central Bank confidently asserted that “the idea that austerity measures could trigger stagnation is incorrect.”

Well, someone was incorrect, all right.

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I like to include myself among the some economists that gave warnings right at the start