2008 Nobel Prize winning economist, Paul Krugman wrote the article `Deep Hole Economics` on the NY Times. In a nutshell, the article warns the readers to be dubious about the recent economic improvements. The author uses a variety of resources such as Gross Domestic Product (GDP) figures, unemployment and growth rates to warn readers and policy makers about the recent small economic upturns that have the potential to pull back the US economy into a recession again.
Recently several economists have confirmed that the consumer spending rates in certain sectors are increasing and that a 4% growth rater maybe possible in the upcoming years. However, Krugman cautions that although a 2.5% growth rate is required to keep up with increasing productivity and population, 2 extra growth points are requited to bring down the 10% current unemployment rate. Krugman fears that optimistic policy makers may read too much into the dry statistics, declare that the recession is over and cease the `recovery process`, this could potentially bring down the economy again. Moreover word has also spread that the Federal Reserve will not implement the $600 billion bond-buy back plan it has announced previously; this too will not increase consumer spending or ameliorate the faltering economy.
Krugman urges readers to be prudent about the status quo and policymakers to uphold the recovery process and consumption rates. However with wavering banking, investment and construction industries its unlikely that consumers will start spending more without incidences of tax breaks, which in turn will may cause budget deficit. One question that remains unanswered is how is the Obama administration going to strike a balance between high consumption rate and low government spending?
Follow the link http://www.nytimes.com/2011/01/03/opinion/03krugman.html to read the article.
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