Krugman the Witch Doctor

Subject: is it just me…

…or is Krugman sounding ever more like some desperate, wild-eyed Climate Alarmist, frantically trying to ratchet up the scale of the impending calamity we face, lest his readiers tire of hearing his declamations, all launched in the name of a false – but conveniently unfalsifiable – parody, not just of science, but of basic logic, too?

See How Much Of The World Is In a Liquidity Trap?

As I’ve written many times in various contexts since the crisis began, being in a liquidity trap reverses many of the usual rules of economic policy. Virtue becomes vice: attempts to save more actually make us poorer, in both the short and the long run. Prudence becomes folly: a stern determination to balance budgets and avoid any risk of inflation is the road to disaster. Mercantilism works: countries that subsidize exports and restrict imports actually do gain at their trading partners’ expense. For the moment – or more likely for the next several years – we’re living in a world in which none of what you learned in Econ 101 applies.

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And by [my] criterion, how much of the world is currently in a liquidity trap? Almost all advanced countries. The US, obviously; Japan, even more obviously; the eurozone, because the ECB probably couldn’t engage in Fed-style quantitative easing even if it wanted to, given the lack of a single backing government; Britain. Not Australia, I guess. But still: essentially the whole advanced world, accounting for 70 percent of world GDP at market prices, is in a liquidity trap.

From Sean Corrigan