Wednesday, March 26, 2014

Econ 101

I'm not totally wedded to these particular numbers, but let's say for the sake of argument that the right policy is two years of fiscal expansion amounting to 3 percent of GDP each year, plus a permanent rise in the inflation target to 4 percent. These wouldn't be radical moves in terms of Econ 101 -- they are in fact pretty much what textbook models would suggest make sense given what we have learned about macroeconomic vulnerabilities. But they are completely outside the bounds of respectable discussion.

That's the sense in which we are "doomed" to long-term stagnation. We have met the enemy, and it's not the economic fundamentals, it's us.
Source: Paul Krugman.

Does it bug you that the tea party's hold on politics makes it politically incorrect to apply basic knowledge ("Econ 101") to our economic problems? It does me. It's the anti-science attitude that denies evolution and global warming carried over to economics. Except that in the former two fields, the know-nothing attitude is still being challenged. In economics, the know-nothing attitude is so dominant that "Econ 101" is "outside the bounds of respectable discussion."

By the way, if there's anyone who knows Econ 101, it's Paul Krugman. He wrote the book on it, literally.

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