Return of Depression Economics

Quotes from Paul Krugman
Winner of 2008 Nobel prize for Economics

From The Return of Depression Economics, and the Crisis of 2008, Penguin, 2008

The truth is that good old-fashioned demand-side macroeconomics has a lot to offer in our current predicament.

...We need to deal with the clear and present danger. To do this, policy makers around the world need to do two things: get credit flowing again and prop up spending.

[We] face a global slump that's gathering momentum. What should be done about that? The answer… is good old Keynesian fiscal stimulus.

The point of all of this is to approach the current crisis in the spirit that we'll do whatever it takes to turn things around; if what has been done so far is not enough, do more and do something different, until credit starts to flow and the real economy starts to recover.

And once the recovery effort is well underway, it will be time to turn to … reforming the system so that the crisis doesn't happen again.

…there is a free lunch, if we can only figure out how to get our hands on it, because there are unemployed resources that can be put to work. The true scarcity of Keynes's world – and ours- was therefore not of resources, or even of virtue, but of understanding.

and Speaking of the US response

The next [stimulus], should be much bigger, say, as much as 4 percent of GDP.

The… plan should focus on sustaining and expanding government spending – sustaining it by providing aid to state and local governments, expanding it with spending on roads, bridges, and other forms of infrastructure.

… the usual objection to public spending as a form of economic stimulus is that it takes too long to get going – that by the time the boost to demand arrives, the slump is over. That doesn't seem to be a major worry now, however: it's very hard to see any quick economic recovery…