mises.org / By Daniel J. Sanchez / Thursday, February 21, 2013
To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Krugman. 2002. Calling for a housing bubble.
What’s more, by explicitly calling for a new bubble to replace the recently burst one, he anticipated by 6 years The Onion‘s hilarious “report” that “demand for a new investment bubble began months ago, when the subprime mortgage bubble burst and left the business world without a suitable source of pretend income.” Except Krugman was being serious.
The quote caught on in the blogosphere, to such an extent that Krugman actually responded in his New York Times blog:
Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.
So with a deft little two-step, Krugman painted himself as a doctor who gave an excellent diagnostic, and not a disastrous prescription. One of his ditto-heads posted on his blog that saying Krugman advocated or caused the housing bubble was “Like saying Nostradamus caused the rise of European fascism.”
Even economist Arnold Kling bent over backwards to interpret the column in a benign light:
He was not cheerfully advocating a housing bubble, but instead he was glumly saying that the only way he could see to get out of the recession would be for such a bubble to occur.
Mark Thornton on Mises.org followed up with a devastating collection of 2001 Krugman quotes clearly documenting his support for inducing a housing bubble. The most damning of this batch is the following from a 2001 interview with Lou Dobbs:
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. [emphasis added]
How can anyone spin that as a purely academic musing, and not a policy recommendation for artificially inducing housing spending?