Paul Krugman Wrong AgainSubmitted by Andi.F on Fri, 09/14/2012 - 23:49
"Krugman's main line of argument has been that more fiscal stimulus is always needed as long as a significant output gap exists. But in Cyprus and Slovenia, very substantial fiscal stimulus generated minimal growth. Neither country would be suffering from its current financial conundrum had it not followed such a policy. Spain would probably be safe as well.
Krugman's disregard for the risk of sovereign default is perplexing. His main line of thinking seems to be that Europe has a growth problem, not a debt problem, and he appears to believe that a fiscal stimulus can always overcome the threat of the increased public debt burden. Even in the case of Greece, which had a gross public debt of 165 percent of GDP at the end of 2011, he failed to notice the danger but financial markets declared that the country's public debt was excessive. Slovenia's public debt of 50 percent of GDP, for instance, is more than the markets accept, as its bond yields have exceeded 7 percent."