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End of Depression Discussion

END OF DEPRESSION DISCUSSION 3

Endof Depression Discussion

Endof Depression Discussion

Throughthe book, Krugman (2012) presents expansionary policies as thesolution to the depression trends of the United States economy.Published at a time when the economy of the United States is faced byserious crisis, Krugman also argues that ending austerity willrecover the economy (Krugman, 2012). Krugman explains thedeterioration of the economy despite government efforts in bothPresidents Bush’s and President Obama’s time. However, indisagreement with Krugman (2012), the economy cannot be recovered byincreasing the level of government spending on the economy. This isbecause expansionary measures do not always lead to positive economicimpact it can lead to varied multiplier effect on the economy.

Ina rational economic situation, expansionary measures normally expandthe economy and cannot lead to recovery under crisis. In fact,increased expansionary policies in the economy will lead toinflationary measures. This is because these policies increase moneysupply in the economy. The result is not healthy to the value of thedollar that has historically deteriorated since the times of goldstandard. However, expansionary measures could be beneficial if theycould be directed to specific internal economic sectors thatdirectly impact on the economic fundamentals of employment,production and international trade.

Infurther disagreement with Krugman, austerity should not be endedinstead, it should be selectively applied to discriminate againsteconomic sectors that are depriving the economy. Even if the economyneeds resources and funds to circulate, not all government spendingpolicies ends with favorable multiplier effect. Therefore, thegovernment should promote expansionary policies on sectors thatencourage consumption and production for international trade. This isthe appropriate application of Krugman points without hurting theeconomy.

References

Krugman,P. (2012). EndThis Depression Now!NewYork: W.W. Norton