Home > debt, depression > Krugman considers Koo

Krugman considers Koo

December 28, 2011 Leave a comment Go to comments

Paul Krugman devotes his New York Times column to Richard Koo‘s RWER paper The world in balance sheet recession: causes, cure, and politics.  It includes the following.

I still have some differences with him over monetary policy — I still don’t understand why he doesn’t see debt-eroding inflation as something helpful in dealing with debt overhang — but his view of the sources of our Lesser Depression is completely right.

Let me just focus on the United States. Here’s gross private saving minus gross private investment — the private-sector financial surplus:

This huge move into surplus reflects the end of the housing bubble, a sharp rise in household saving, and a slump in business investment due to lack of customers.

Given this reality, it’s not hard to see why massive government borrowing hasn’t led to soaring interest rates; we’re awash in saving with no place to go. And that’s also why we’re in a liquidity trap, in which large increases in the monetary base don’t lead to inflation.

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Categories: debt, depression
  1. Helge Nome
    December 29, 2011 at 6:34 pm | #1
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    I think the chart above shows the fear-factor at work, in the shaded area 2008-9.
    Which indicates that economics is all about mass psychology (psychosis?).

  2. Michael Monterey
    December 29, 2011 at 8:29 pm | #2
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    Thanks again Helge. Of course, psychosis and neurosis and their collective manifestations are fundamental realities of corrupted commercial economies, more prevalent in the Plutonomy (end game) phase.

    I appreciate Koo’s focus on the fabricated abstraction of the current fiasco, but think it would be wise to focus as much or more on the terminal aspect of the general obsession with score and balancing cooked books despite the unsustainable impossibility due to the miracle of compound interest and ever more of the world’s paper/digital “assets” being acquired and misused by the Biggest Winners, the ecocidal plutocrats, as 99.99999995% of us plunge ever further into the artificial abyss.

  3. Michael Monterey
    December 29, 2011 at 8:44 pm | #3
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    PS: All comments that deal with basic assumptions and artifacts of any of the current “standard” models of plutonomics yet ignore the realities of systemic perversity & corruption are hopelessly irrelevant to the Real Deal unfolding.

    Economics without heroic compassion, biocentric intent, humanistic values, and ethical integrity is like rape, pillaging, and lame excuses for colluding with slavery, genocide and/or ecocide. Plutonomics also reminds me of the “Duck & Cover” films of the early Cold War era and affluent passengers on the Titanic cooly discussing the statistical probabilities of the situation while the band played on & the iceberg continued ripping through the hull.

    Ho hum… No wonder its called “the dismal science”

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