Krugman says "We are F***ed!"

In an opinion piece today in the New York Times, Nobel Laureate Paul Krugman provides a sobering analysis of the state of our economy. Mr. Krugman basically asserts that: "We are f***ed!" Eventually, he says, things will get better but we cannot count on that gravy train ever again.

In his Life Without Bubbles piece, Krugman asserts:

“Whatever the new administration does, we’re in for months, perhaps even a year, of economic hell. After that, things should get better, as President Obama’s stimulus plan — O.K., I’m told that the politically correct term is now “economic recovery plan” — begins to gain traction. Late next year the economy should begin to stabilize, and I’m fairly optimistic about 2010.”

Why does Krugman predict such a dire future you say?

“The prosperity of a few years ago, such as it was — profits were terrific, wages not so much — depended on a huge bubble in housing, which replaced an earlier huge bubble in stocks. And since the housing bubble isn’t coming back, the spending that sustained the economy in the pre-crisis years isn’t coming back either.

To be more specific: the severe housing slump we’re experiencing now will end eventually, but the immense Bush-era housing boom won’t be repeated. Consumers will eventually regain some of their confidence, but they won’t spend the way they did in 2005-2007, when many people were using their houses as ATMs, and the savings rate dropped nearly to zero.”


Krugman is absolutely correct when he states that our past economic boom was sustained by “bubbles”, a technology stock bubble in the nineties followed by a housing boom. Further, he opines that Americans will not spend as much in the future. Really? Krugman places too much faith in the American consumer and this is where we disagree. Consumer confidence is indeed at an all time low but Americans will return to their credit spending habits once they feel that the economy is back on track.

So, Mr. Krugman, what is your solution?

“A more plausible route to sustained recovery would be a drastic reduction in the U.S. trade deficit, which soared at the same time the housing bubble was inflating. By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending.”

We need to rebuild our manufacturing base and without it, there can be no long term economic recovery. It is imperative that we establish a new alternate energy economy. American innovation and ingenuity must once again rise to create advances in fuel cell technology, solar panels, and wind turbines which will spur new growth industries that can be exported to other countries. This will not create a bubble per se, (they eventually burst when they become overly inflated), but rather a new economic model based on reusable energy manufactured and distributed right in the good ole USA.

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