I love Paul Krugman’s work, precisely because it is correct, simply corrupted by his education. He was taught that more Cash during a downturn was the Answer for everything–a.k.a. Keynes–and that there was no limit to the potential largesse. He fails to understand that there are limits to the amounts which can be paid for production materials and labor, and that Stimulus over a set amount will only artificially hide Production declines by claimed business Profits. Less Product is produced, less Product is planned for, and less Product is delivered; but business proclaims record Profits. I hate to reveal this to Paul, but it does not make the economy better for the expenditure.
I know that this is a hard Concept to accept, and even more hated; but Stimulus must be driven from the ground up. This means that the Cash has to be delivered to the Consumers. Business will be already growling in anger, but it is to be expected. They will say this requires Tax Cuts for business, when nothing could be further from the truth. Such Tax Cuts only enlarge the Profits of business without any incentive to Invest, unless there is apparent Consumer Demand. The later will not be evident until there is a reduction in Household expenses. Stimulus under these conditions mean only that the Rich get Richer, while the quality of life declines for the greatest number.
What are the Options open to stimulate the economy? I like a moderate increase in Minimum Wage, something which produces a shelved increase in all Wage scales as Business pays for expertise. I say moderate increase because We do not want any increase in Consumer prices if We can help it; Business will scream, but the increase should be planned to not lose Business more than 3% of their Profitability. One of my most favored types of Stimulus is federal assumption of State and Local governmewnt expenses, but only if the local government authority can prove a reduction in Property and Sales Tax levels by the replacement. There are other Means at economy policy operations; I only wanting to outline the potential for achievement in this area. lgl