I can’t see what Krugman has to complain about. Bush and Greenspan were only doing what he suggested.
A few months ago the vast majority of business economists mocked concerns about a ”double dip,” a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I’ve repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.
The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. 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.
Paul Krugman 08/02/2002
What Greenspan really needed to do was to declare the world economy hunky-dory and close the doors on the Fed. You’ll never get any stability with people attempting to control a population’s saving and spending in ways 95% of the population don’t understand.
Speaking of which, I’ve recently finished The Politically Correct Guide to the Great Depression and the New Deal, by Robert P. Murphy. I’m going through right now and highlighting some of the choicer quotes to use here next week.