For the last six months, my family has been trying hard to convince me of the need to move into a bigger house.
They've all had their good reasons. The children have been complaining about Morgan (our pet cat) who shares the room with them. My wife has been losing her temper because the children often left their study material in the living room. And I have been not very happy about the restrictions on my television viewing, because I either disturbed the children's studies or my wife's sleep.
Although I was not very enthused about the prospect of jacking up the family budget by 20 per cent in these difficult times, I more or less agreed to the idea, for the sake of domestic peace.
We had almost identified a few properties that suited our needs. In fact, we were due to finalise one this weekend. But then I suddenly developed a strong aversion to the idea.
I conveyed the bad news to the family after dinner. The children looked very disappointed, the wife vanished into the bedroom without a word, and Morgan gave me blank look.
I think the blame for this family trauma has to be placed fairly and squarely on Nobel-prize winning economist Paul Krugman, who wrote a depressing op-ed piece in the New York Times last Monday titled ‘The Third Depression.' Although his objective seems to have been to scare world leaders away from austerity policies, the article had exactly the opposite impact on me.
Krugman took a decidedly bearish tone on the global economy in the context of efforts by the developed world to bring their runaway fiscal deficits under control.
One of the few resolutions to come out of last weekend's G20 summit in Toronto was a pledge to cut deficits and bring countries' respective fiscal houses in order. While many analysts and economists cheered the proposal, some decried the plan as a step in the wrong direction, proposing that governments need to continue to spend more in order to keep economies afloat.
One of today's leading Keynesians, Krugman thinks that global leaders are about to make the exact same mistake that turned the stock market crash of 1929 into the Great Depression. He wrote: "…the third depression will be primarily a failure of policy. Around the world — most recently at last weekend's deeply discouraging G20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending."
Unemployment levels
Krugman's worry seems justified as far as unemployment levels in the US and Europe are concerned. While the jobless rate in the US is hovering around 10 per cent, bad enough, in most of Europe it's worse. Undoubtedly these are historically high levels, usually associated with economies that are in crisis.
True, the immediate concern is deflation and unemployment. But will there be an end to the spending binge of developed nations? What about the deficits and debt they are already drowning in?
The 17th century French philosopher, Rene Descartes, reasoned that the process of reasoning itself is good enough proof for one's existence, and concluded ‘cogito ergo sum' (I think therefore I am). Neo-Keynesians seem to be attributing deficit spending as the cause and consequence of the existence of modern economies, which are in need of endless stimulus, with retrenchment only ‘once the economy recovers'. It sounds like they are arguing ‘we borrow therefore we are'. Or that we ‘are' only if we spend.
While the US administration might use this rationale as a good enough excuse to ramp up its currency printing press, for European policymakers painful austerity may actually be the only way to salvage what is left of their economies and the common currency.
In any case, with the threat of the impending depression, Krugman has managed to scare any trace of Keynesian thought out of me as far as spending on a new house is concerned.
