Business: Finding a balanced solution to crisis stalemate
End This Depression Now!
By Paul Krugman
Reading Paul Krugman's 'End This Depression Now!' got me thinking about 'The Zax' by Dr Seuss.
Written for children aged four to 99, the fable unfolds in the prairie of Prax, where a North-Going Zax and a South-Going Zax collide and stop in their tracks, each refusing to step aside.
"Never budge! That's my rule," yells one spiky-haired beast. "Never budge in the least! Not an inch to the west! Not an inch to the east!"
The Zaxs' game of chicken resembles today's stalemate over how to speed recovery in the US and Europe. On one side stand the Austerians, as Krugman calls them: they are determined to slash deficits. On the other loom what we might call the Stimulators, who seek more government spending to create jobs.
Krugman's own stance is clear. A Princeton University professor who won the 2008 Nobel Prize in economics, he's best known as a 'New York Times' columnist who hews to the teachings of John Maynard Keynes.
"Now is the time for the government to spend more, not less, until the private sector is ready to carry the economy forward again," he writes.
The US is suffering from what Keynes called "magneto trouble," Krugman says. The country's economic engine remains strong, it's just the alternator that's kaput. Stimulus can provide the sparks to get the car cruising again, he insists.
We've heard the argument before, of course. What sets this book apart is Krugman's readiness to address the anxieties of the Right-Going Zax.
Yes, says the Left-Going Zax (taking a step to one side), we shouldn't minimise what a burden heavy government borrowing can be: consider Ireland.
And, yes, excessive debt did cause the crisis, he says, embracing Hyman Minsky's explanation of how insouciant leverage in good times gives way to panicked deleveraging in bad.
About 15pc of the American workforce is unemployed or underemployed, and things are even grimmer for the young.
Youth unemployment has reached 17pc in the US, 28pc in Italy and 30pc in Ireland, he says.
The suffering is gratuitous, he argues, citing the torrent of government spending during World War Two that dragged America out of the Great Depression. Now, as then, we need to "spend now, pay later", he says.
One way to get people back to work fast: restart investments in roads, rails and water systems that austerity measures delayed or cancelled.
And it's time to get less timid about debt forgiveness for the more than one-in-five US mortgage borrowers now under water, argues Krugman.
Whether his arguments will find favour, or perhaps if governments can even afford to embrace them, is another question altogether.
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