Krugman: The Facts Have A Well-Known Keynesian Bias

Paul Krugman argues reasonably that the only way out of this effective recession, short-term, is Keynesian.

By Paul Krugman

There are many things to say about Alan Greenspan’s op-ed yesterday, none of them complimentary. But what struck me is the passage highlighted by Tim Fernholz:

Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.

You know, some people might take the fact that what’s actually happening is exactly what people like me were saying would happen — namely, that deficits in the face of a liquidity trap don’t drive up interest rates and don’t cause inflation — lends credence to the Keynesian view. But no: Greenspan KNOWS that deficits do these terrible things, and finds it “regrettable” that they aren’t actually happening.

The triumph of prejudices over the evidence is a wondrous thing to behold. Unfortunately, millions of workers will pay the price for that triumph.