Krugman Says: Fear A Lost Decade
In an interview for the Guardian, this year’s economics Noble prize winner shares his view on the development of the crisis and predicts a Japanese lost decade style stagnation on a much bigger scale. Although the worst was averted, there is a realistic scenario for the leading economies in the world to plunge in a liquidity trap where near or equal to zero nominal interest rates do not stimulate the economy to full employment. This may result in a price deflation and worsen the recession.
On a brighter note, Krugman praises the new US administration,
I’m increasingly happy with him [Obama]. I was unhappy; I think they could have gotten a bigger stimulus coming out the gate. But they’ve become more forceful. I would have been more aggressive on the banks; we’ll see if we need to re-fight that battle later on.
Healthcare is looking really good. I’m getting increasingly optimistic on healthcare reform. Climate change looks like it’s going to happen. So my odds that this will in fact be the kind of New Deal I was hoping for are rising. I had my scepticism, but he is smart. He’s impressive. And it is such a relief to have somebody whom you can respect in the White House.
