Published On: Tue, Jan 6th, 2015

Economist Paul Krugman Sounds Alarm over ‘Valley of Despond’ in World Income

Professor And Columnist Paul Krugman Wins Nobel In Economics

A chart showing income growth since 1988 by percentiles of world income distribution, the surge by the global elite plus the dramatic rise of many people in emerging markets was the best chart of 2014, New York Times columnist Paul Krugman said.

The U.S. lower-middle class and advanced-country working classes in general were in between, the Nobel laureate economist said, adding that he thought it will be a crucial factor in developments over the next few years.

The chart shouldn’t be all that surprising as India and China grew dramatically between 1988 and 2008, as did a number of smaller middle-income nations, accounting for the big spike in incomes for the global middle class, a column on Vox.com said.

Top incomes in developed countries surged while median incomes stagnated, forming that Krugman called the “valley of despond” , the website said.

Figuring out how to fill in that valley is an important, and extremely difficult, challenge. But the more important task is figuring out how to boost growth of incomes for the world’s poorest people, the website said.

Meanwhile, despite fiscal austerity since 2011, the U.S. has been doing better than expected, an article on MarketWatch.com said, claiming that Krugman has been incorrect in maintaining that deficit-cutting advocates of fiscal austerity are deluded.

Rather than a new recession, or an ongoing depression, the U.S. unemployment rate fell from 8.6% in November 2011 to 5.8% in November 2014. Real economic growth in 2011 stood at 1.6%, and the IMF expects it to be 2.2% for 2014 as a whole. GDP in the third quarter of 2014 grew at a vigorous 5% annual rate, suggesting that aggregate growth for all of 2015 will be above 3%, the column said.

Recent trends — a decline in the unemployment rate and an accelerating rate of economic growth — cast doubt on Krugman’s economic diagnosis, according to the report.

It said that not one of his New York Times commentaries in the first half of 2013, when “austerian” deficit cutting was taking effect, forecast a major reduction in unemployment or that economic growth would recover to brisk rates. On the contrary, “the disastrous turn toward austerity has destroyed millions of jobs and ruined many lives, ” he argued, with the U.S. Congress exposing Americans to “the imminent threat of severe economic damage from short-term spending cuts.” As a result, “full recovery still looks a very long way off, ” he warned. “And I’m beginning to worry that it may never happen.”

Obviously, recent trends — a significant decline in the unemployment rate and a reasonably high and accelerating rate of economic growth — cast doubt on Krugman’s macroeconomic diagnosis, the column said.

“Krugman is a great economic theorist — and a great polemicist. But he should replace his polemical hat with his analytical one and reflect more deeply on recent experience: deficit-cutting accompanied by recovery, job creation, and lower unemployment. This should be an occasion for him to rethink his long-standing macroeconomic mantra, rather than claiming vindication for ideas that recent trends seem to contradict”, according to the column.

In another development, after Professor Krugman recently advised Japan to delay tax hikes, and the Asian country implemented a zero interest rate policy about 7 years before the U.S., there are questions regarding whether we are witnessing the fruits of this central planning scheme, and whether we are far behind, the American Thinker said.

 

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