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October 15, 2003



The economic news today (and for weeks now actually) is good for the country and not good for our dear Prof. I'm sure he's combing the blogosphere for more spin...


Hey, Hammer. Cautious optimism, buddy. The next step will be speculation (sorry, dramatic assertion) about a double dip recession, but we may be running out of time for the second dip.

Kevin Drum

The Damocles model uses a number of measures, and current account deficit is only one of them. In their model, the U.S. comes out significantly worse than France, Germany, etc.

Which is not to say they don't also have problems. Nor is it to say that the Damocles model necessarily works well for a country like the U.S. -- as Krugman rather plainly stated.

So what's the problem?

Tom Bowler

Jane says "the column is a very good look at what I consider to be a major macroeconomic weakness of the American economy: our propensity to borrow from abroad to finance our current consumption, with no clear idea where the growth is going to come from..."

I guess I would have to ask, isn't it characteristic of a free market economy that you really can't be sure what direction it's going to grow? Isn't the economy going to grow according to where businesses find profits? I suppose if you work on Wall Street you might like to be able to make a good guess before you place you bets, but from a macroeconomic standpoint, do we need to have a clear idea of where as opposed to how much?

I could easily believe that Krugman would like to see our government step in to guide the growth of our economy in a way that is compatible with the environment and fair for the less fortunate. Growth could be even be assisted in such a manner. I would also expect that applying Krugman's judgement as to what is good and fair would choke off any hope for growth.

Somehow I don't see Jane going along with that.


From his column:

If our political system can't bring itself to choose one alternative or the other — and so far the commander in chief refuses even to admit that we have a problem — we will eventually face a nasty financial crisis.

...What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

I think we are way beyond analysis, and well into hype. For example, how likely is the "worst case scenario" where the US Gov't can't even borrow?

Is this column being written by Paul Krugman, noted economist considered a candidate for his work in foreign trade? Or by Paul Krugman, political polemicist?



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