Krugman: Throw Away Prudence to Fix Economy
Depression economics have taken hold
By Kevin Spak,  Newser Staff
Posted Nov 14, 2008 12:03 PM CST
Up is down and down is up in these desperate economic times.   (Shutterstock)
camera-icon View 1 more image

(Newser) – The financial world has been turned upside down, and while we may not be headed for another Great Depression, we are embroiled in “depression economics,” writes Paul Krugman of the New York Times, a time when normal economic tools like the Fed's rate-cutting powers have “lost all traction.” In times like these, “virtue becomes vice, caution is risky and prudence is folly.”

With the effective Fed funds rate averaging less than 0.3%, the government has no options left but a stimulus package, and it had better be huge — think $600 billion. Normally, that would raise worries over the deficit, of moving too fast or dreaming too big, but the risk of inaction is so high that those rules just don’t apply. Right now, Krugman writes, “it would be dangerous to give in to conventional notions of prudence.”