except, inflation is tame in the US, even now with the amount of money injected into the economy, why?  Because the high unemployment and low consumer spending is actually threatening a deflationary cycle without the injection of money

If economic activity were studied without the exclusion of money, they won't understand how economics work.  At the core of economics is the exchange of goods and services for other ones.  There has to be a genuine need or want at the bottom, or it doesn't work.

The problem that has been going on is the government has been running debt year after year after year, and has been taxed.  It produced a housing bubble.  There is no other place to get money from unless you keep taking from tomorrow, and they have been.  Eventually the thing can collapse.

Study the numbers regarding employment post 2000.  The job growth hadn't kept up with population growth at all.  More tax cuts and spending and no jobs.  A reason why is employers don't hire for the sake of hiring.  They avoid hiring like the plague unless they have no choice.   And with increased specialization, there was harder for them to find employees.  What they did was make people salaries and increase their hours.  You see this is how America had increased GNP.  It was because Americans had to work harder and longer hours.  With this, corporations felt it a trendy thing to lay people off, even when showing record profits.

If businesses are going to lay people off when they make record profits, how the heck does more money solve this?  Do you have an answer?

Increasing government spending happens to temporarily cause increased economy activity, but there is no guarantee that it is sustainable.  And that is the problem.

The government has playing games with the inflationary numbers for YEARS.  It faces a time bomb with social security, so the more it can avoid doing COLA, the better it happens.  There is also other political reasons for doing this.  Have you seen how the U.S government calculates inflation now?  By the way, check this site out regarding the stats on inflation and unemployment:

http://www.shadowstats.com/

And more on this here:

http://moneycentral.msn.com/content/p72746.asp

And more on how the shift took place:

http://www.theleftcoaster.com/archives/004721.php

http://www.financialsense.com/stormwatch/2005/0624.html

Feel free to do more on this and add your own clarification to it.

yes, we all know that there is some tweaking of the stats, but even then, its apparent that prices haven't been heavily affected in the past two years, in fact, many things are cheaper now

It's a really simple model... just make the yellow line go to the left. What happens when less people are willing to buy at every price level? The price level goes down. Disinflation. What happens when the rate goes below 0%? Deflation.

And what happens when there's deflation?

Shit.

Keyensianism does NOT, for fuck's sakes, advocate inflating the economy all the time. I mean, c'mon, you even read the title. What Krugman is advocating is COUNTER-CYCLICAL policy. Krugman is advocating that he wants the governmetn to pull the opposite way in all situations. When the economy is doing fine on its own, that is, when people are spending a normal fraction of their money, and businesses are investing, the government begins taxing and raising the interest rate, to prevent over spending and over producing. The things you've described to hate.

But the government should also spend and lower interest rates, when there is an aggregate demand shock. That is, the decrease in consumer confidence, the "animal spirit".

It is rational, individually, to begin saving when times seem bad. But that's the paradox of thrift, it only makes things worse. In order to combat this self harming, the government picks up the slack and demands goods in place of the consumers, who are making the same ammount of money, but simply not spending it. Why? Because if consumers don't buy, then producers don't invest, even further depressing the economy. With lack of demand, there is a reduction in inflation rates, and eventually there will be deflation. Which will create a liquidity trap. This waiting out crap is waiting to have more oil on the edge of the hole.

If the government simply picks up the slack, then the consumers will regain confidence in the economy again, and begin spending more. Then the government picks up less and less slack, GRADUALLY, and then once things are better again, it lets go. Then it begins to tax more, cut spending more, increasing rates, and worry about paying off the debt it made.

Baisically do you believe in the following things:

http://en.wikipedia.org/wiki/Consumer_confidence

http://en.wikipedia.org/wiki/Sticky_wages

Then I think you'll naturally come out to become a Keynesian on your own.

What money to spend? Seriously, everyone is hedging their bets for a double dip recession if another one of Europe's PIIGS (Portugal, Italy, Ireland, Greece, Spain) default on their sovereign (national) debt or if either Japan or China come close to defaulting.

The problem is, real incomes (income - inflation and taxes) have dropped since 1980. I remember hearing stories how my Grandfather's brothers were able to support a middle class lifestyle for a family of four on a single income as a blue collar worker in the steel mill, auto mechanic, and whatnot. Nowadays, you need two, white collar working parents just to afford a middle class lifestyle for little Johnny and Jane and we ain't even brought the cost of college yet.

Fact is, access to easy credity has been a substitute for the drop in real income over the past 30 years. The crash in 2008 and the subsequent and continuing downfall of the easiest line of credit, real estate, has put Americans into a position of hedging their bets that the economy will not be back to what it was in 2005 until at least another decade or two regardless of which political party controls the presidential veto via the White House.

The best way out of the recession, imo, is to encourage business activity as much as possible. Lowering minimum wages, cutting regulations, embracing free trade, lowering taxes, will be far better for the economy over the coming decades than if the Government was to just "spend" it's way out of the recession.

Even if Governments didn't have this debt problem, atm, I'd still be against the very notion of them creating stimulus above spending on infrastructure and education. Recessions are a natural part of the economic cycle, and a necessity. A Government bailing about an inefficient firm only harms everybody in the long run.

And then you have to consider that the Governments actually have no money to spend, at the moment. The deficits they are running is causing extra volatility in the currency markets, and pushing up inflation - both of which dampen trade, dampen productivity, dampen growth.

It is certainly true that saving and lost confidence go hand in hand, and it is certainly true they conspire to create economic downturns and even recessions.  But Keynesianism isn't wrong because it conceptually has it wrong within the frame of a single cycle of policy, it is wrong because it fails to consider the consequences of numerous cycles.

More directly, the problem with Keynesianism has always been that it severely undervalues economic destruction.  It naively advocates that the government can smooth out economic dips continually with no ill effects on the economy in the long term.  The result is that in each such cycle the fat that would have been cut away by a natural dip in the economy is instead preserved.  In the next cycle even more fat is left untouched by the preventative measures of government.  Until eventually the weight of that fat leaves the government to choose between spending itself into oblivion to prevent the impending cycle (which is as big as ever) or allowing the occurrence of what it has naively tried to avoid for a decade or more.  Only now the choice is not so easy, because either way you go at this point you will have the potential to seriously damage the economy in the long term and in some situations (like the one we find ourselves in) the potential to even destroy parts of the economy entirely if not the whole of it becomes very real.  Somewhat ironically the gravity of the situation is then used to justify continued adherence to the need to avoid destruction.

In this respect Keynesianism is similar to the old philosophy of fighting fire where setting a small fire to prevent a large one was viewed as a silly idea.  But we know that like the dry underbrush, the weak businesses, firms, banks, etc... cannot be protected just because we have a fear of economic downturns that might cause some strife for people in our economy.  To continue the analogy, a small control fire will of course cause collateral damage to plant and wildlife as well as getting rid of that dry underbrush, but the damage is miniscule compared to the eventual disastrous fire that will come of it is not done.

This approach is appealing to many politicians because so long as the major downturn that cannot be avoided doesn't happen on their watch they are happy to pass that buck on to the next sucker.  People generally don't understand the longterm effects of economic decisions and politicians often get blamed or get credit for the good and bad decisions of their predecessors or ocassionally of their predecessor's predecessor.  And as most of us know all too well, politicians love to pass the back while being able to appear that they did a fantastic job.

To be fair I think Keynesian philosophy is a valid economic *theory*, I just think it's most common application in avoiding economic destruction is misguided.  And to be fair not all branches of the philosophy ignore this, but unfortunately all branches that find their way into political practice do.

I think it applies more to Krugman than it does to Greenspan. As is to be expected of someone who made the transformation from economist to pundit, Krugman is also blinded by his prejudices. He is a perfect illustration of the complacency Greenspan was talking about. If there isn't runaway inflation right now, there must be nothing to worry about.

It's bizarre that the man who thought the sky was falling with $6 trillion dollar debt can barely muster even a "ho hum" for a debt that's projected to be $20 trillion by 2015. The Conscience of a Liberal apparently isn't bothered one little bit by selling future generations into debt slavery... at least not if he likes the sitting president.