What could be the worst possible advice anyone could suggest in 2002 to fight the recession? Maybe create a housing bubble? But that is exactly what our Nobel Prize winning economic baboon suggested:
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that... Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.(from Krugman's August 2, 2002 New York Times column)
So how is that housing bubble working for you?
If Krugman had an ounce of honor, he would give back his Nobel Prize, then go pull a David Carradine somewhere.
(Hat tip to lewrockwell.com)
UPDATE: Krugman's response:
One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc.. The latest seems to be that I called for the creation of a housing bubble — in fact, the bubble is my fault! The claim seems to be based on this piece.My only problem with Krugman's explanation is that nowhere in the original piece does he suggest that a housing bubble would be a bad idea.
Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.
And the little joke about the housing bubble being his fault? Nice touch, but nobody is saying that. We are just calling you on the carpet for being on the wrong side of history yet again.
"Econoblogger" Megan McArdle says it best: "...there's a paragraph I'm sure glad I didn't write."