Monday, September 19, 2011

Krugman Refutes Own Previous Writing On "Potential GDP"

Paul Krugman correctly notes that the recession has lowered production capacity and will therefore also lower the level of output even in the long term, but of course his conclusions from that are wrong as they assume that Keynesian policies will strengthen the economy.

Furthermore, Krugman's new insight means that he himself refutes his previous assertion that "potential GDP" has grown as much as before the recession, an assertion crucial not only to his estimates of a really large "output gap" but also his denial of the big increased in federal spending during Obama (because he put spending in relation to his estimates of a really big "potential GDP).


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