Skip to main content

View Diary: Krugman: "The Urge to Purge" (62 comments)

Comment Preferences

  •  You purge bubbles when they are small. (3+ / 0-)
    Recommended by:
    BYw, RichM, bsegel

    This is one fundamental idea in Keynes' General Theory of Employment, Interest and Money from 1936. Small bubbles, when identified and appropriately deflated do not pose a great risk to the overall economy. Large bubbles, such as that of real estate and certain types of stocks, deflate on their own often with a chaotic and destructive fashion.

    But then, identify a bubble. Then identify what is a natural market for a commodity like real estate. When the distinction can be made between the two and, appropriately, price floors and ceilings, then bubbles can be identified and popped. This is a central issue of government as a regulatory entity that does not entertain a profit motive.

    •  There was a Federal Reserve (0+ / 0-)

      chairman (Martin?) that said that his job was to pull the punch bowl (cheap money) away as soon as the party started to get going.

      •  William McChesney Martin, Jr. (0+ / 0-)

        The Time Magazine quote:

        A stubborn, honest and puritanically forthright man, Martin liked to explain that the Reserve Board’s unpopular actions arose out of its necessary role of “leaning against the wind.” He said: “I’m the fellow who takes away the punch bowl just when the party is getting good.” (Martin is a teetotaler.) Above all, he defended the integrity of the U.S. dollar at home and abroad, though he and the board lacked the power to do the job effectively alone.
        He was Chairman of the Federal Reserve from 1950 to 1970.

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site