Krugman: ‘Fiscal policy is best’

There’s quite a lengthy but nevertheless interesting interview by Will Hutton of The Guardian with Nobel Prize Economist Paul Krugman that might be worth a read.  In the interview with a British newspaper, it was inevitable that Gordon Brown and the UK become a part of it.  Other things included Japan’s lost decade and the Nipponisation/Argentinafication of some developed states as well as the US policies.

Some excerpts:

WH: What was the heart of the Japanese problem? What was at the heart of their 17 years of going nowhere?

PK: Well, my guess is that it was that the balance-sheet problems took a very long time to resolve. And it is difficult to get enough demand in an economy where you have really very adverse demography …

WH: So, which countries look closest to being Nipponised – combining balance-sheet problems and ageing populations?

PK: Well, the US doesn’t have the same combination. But in Europe, Germany and Italy look comparable. France is better and Europe as a whole is considerably better.

WH: So you remain committed to the key role of fiscal policy?

PK: Yeah. Fiscal policies are best; certainly something to do to mitigate recession. People say that the Japanese fiscal policy on all that infrastructure was wasted. But it did help sustain the economy and avoid a collapse. Fiscal policy can certainly do that: it gives the credit sector time to rebuild its balance sheets. There’s every reason to be expansive around the fiscal side now because even if you’re not sure that it provides a long-term solution, avoiding catastrophe is a big thing to do.

WH: How do you see the politics working out in the States and in the UK now? Your praise of Gordon Brown after the banks in October were recapitalised was front-page news. Are you still as well disposed?

PK: I still think his economic policies have been pretty good. They really kind of lost their nerve on fiscal policy, but I do understand it’s harder to do it here. I think the UK economy looks the best in Europe at the moment. I have no position on all of the crazy stuff. But I think the policies are intelligent. The fact of the matter is that Britain did manage to stabilise the banking situation. I’m not ecstatic, but I’m not sure I know what I could have done better.

Read the entire interview HERE.


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