Paul Krugman is a controversial economist to say the least. In recent years he has become famous for anti-austerity pleas, insisting that governments need to keep up deficit spending to ward off an intensifying of the global recession. I would agree that governments can ideally help ease downturns where possible through stimulative spending in things like infrastructure. My point would be, not all government spending is equal in this. It matters what governments direct taxpayer dollars into, if they are to be helpful in moderating the extreme highs and lows of the business cycle.
The trouble is that governments have been notoriously bad at moderating the upswing in risk and credit. Indeed politicians tend to follow not lead, jumping onto status quo bandwagons accelerating risk to the upside. And as we have seen in the past few years, when the inevitable downside hits, where governments could have had a moderating effect on pain in the real economy, they have foolishly squandered finite, precious resources by trying to resist needed changes and bail out undeserving institutions and their leaders in sectors like banks and car companies. So much revenue and deficit spending was misdirected to wrong headed moves at the start of the financial crisis, that there is much less available now to help moderate the next phase of contraction.
In this interview, Krugman makes some very insightful points on money, cognitive dissonance in wealth and power, and the general human desire to be liked and respected. Here is the direct link.