Just what did Wolf say that was so brilliant? Here it is:
I have now lost faith in the view that giving the markets what we think they may want in future – even though they show little sign of insisting on it now – should be the ruling idea in policy.Actually, the Wolf quote is at the end of a long rant in which he excoriates the Organization for Economic Co-operation and Development because its members are rightly concerned about the spate of borrowing and ultra-loose monetary policies. Wolf, instead, believes that governments are not being profligate enough. He writes:
...fiscal tightening would only work if it coincided with a robust private recovery. Otherwise, it would drive the economy into deeper recession. Yes, that is a Keynesian argument. But this is a Keynesian situation.Neither Wolfe nor Krugman explain why there is no "robust" recovery, however. The Keynesian explanation is that a market economy cannot generate by itself the necessary "spending" to move out of the doldrums. Only government can do that.
However, neither Wolfe nor Krugman can explain why that is so when, in fact, every recession before the Great Depression ended without a massive explosion of government spending, including the deep but short-lived recession of 1921. Why is this situation any different?
The problem is that neither person wishes to deal with the fact that the economy is full of malinvestments that governments still are trying to keep propped up, just as Japan tried to do the same during the "Lost Decade." To Keynesians like Wolfe and Krugman, all economic assets are homogeneous, and there is no difference between the activities of the state or private business, economically speaking, except that whatever the state does is morally and economically superior!
Krugman continues to claim that he is not a socialist, but if he wants the state to be doing everything, including confiscating huge amounts of income from individuals, then I don't see where his view differs from standard socialism.