I have been a critic of Paul Krugman after reading his book, “The Conscious of a Liberal”. he just seems to belive that there is no government program that can ever get too big and no problem a government program can’t solve. Hi s greatest praise for government is when it compresses income variations to his acceptable norm.

It was noted that he actually called for a credit induced housing boom in 2001. He has denied it but the Von Mises site (here) noted the following transcripts and dates- from an interview with Krugman

There is another interview with Lou Dobbs here with similar recommendations (may be part of the same archive).

August 14, 2001

http://www.pkarchive.org/column/81401.html

“Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn’t 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place.

October 7, 2001

http://www.pkarchive.org/economy/ML071801.html

“Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.

In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package”

Dec 28, 2001

http://www.pkarchive.org/column/122801.html

“The good news about the U.S. economy is that it fell into recession, but it didn’t fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed’s dramatic interest rate cuts helped keep housing strong even as business investment plunged.”

Furthermore in his own column in 2002 in the New York Times- read here

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

This does not seem to be out of context.

HKO comments- personally I believe that our big recessions are the result of not letting the market adjust to the small recessions. We expect our government, regardless of who is in power, to avoid any short term pain. It is like building taller buildings on weakening foundations.

tips to Ayn Rand Center

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