In Answer to the Subject Title,
. . . Paul Krugman thinks so, unless we follow his policy advice and not only add more fiscal stimuli to the economy despite the proclaimed end of the recession in August of 2009, but keep short-term interest rates as close to zero as possible. His argument, set out in the NY Times was linked to by Prof. Mark Thoma of Economist's View, following which dozens of posts immediately materialized in that thread . . . almost all of which set out the usual fast, top-skimming left-wing dogma of pulpit-pounding groupthink.
In Reply, Prof Bug Left Three Lengthy Posts,
. . . Two of which analyzed what happened in the 2nd Big-Dip Depression within the Great Depression in 1937-38. As usual, that analysis drew on lots of data and some theoretical matters, cited the buggy sources, and ended up with a cautiously hedged endorsement of some of Krugman's worries. It did, though, disagree with his pessimism, and especially his urgings --- now repeated in almost all his NY Times op-eds that if the Chinese don't stop their neo-mercantilism manipulation of their Yuan currency, let it appreciate noticeably in dollar terms, and reduce their huge trade-surplus with us, we should get tough somehow.
As prof bug notes, this exaggerates our leverage over the Chinese even though their $2 trillion in their reserve holdings make them a hostage in part to American economic and financial fortunes. The old banking adage is sound here: if you owe your bank a few thousand dollars, you're in trouble. If you owe it billions, never mind trillions, then the (Chinese) bank is in big trouble and at your mercy.
Above All, Prof Bug Notes,
. . . How we have not just limited leverage other than diplomatic pressure with others on the Chinese to switch from export-led neo-mercantilist growth to domestic-oriented growth, but also we have to be concerned with the diplomatic, military, and political fall-out of an overly tough policy. (Note that trade protection against China, moreover, is illegal under World Trade Organization rules, and there is nothing illegal in IMF rules if the Chinese or any other country wants to peg its currency to the US dollar . . . or for that matter, as has happened in the past at times, to let it float within a managed range in dollar terms.)
Enter the Third Post,
. . . A few humorous pokes at the left-wing dogmatists who complain about Prof bug's bugged-out sort. Enjoy it (I hope).