K'S DOUBLE DIPSCHTICK :

Dubya's Double Dip? (PAUL KRUGMAN, 8/02/02, NY Times)

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance.

It's useless to pretend in an economy the size of ours that anyone truly understands, with any degree of precision, why it rises and recedes. But Mr. Krugman seemingly dismisses out of hand what seems to have been one of the main causes of the recent slowdown in the economy : ill-considered Fed tightening. As the markets ran up to record levels Alan Greenspan vocally worried that sooner or later inflation would be unleashed and the Fed therefore raised rates or kept them at artificially high levels, as they are today, in expectation of an inflation that has never come. This despite the fact that during the same period he has spoken wonderingly of the productivity revolution, which is counterinflationary, and of the outdated measures used to gauge inflation, the notorious basket of goods that still reflects purchasing habits from the 60s. As to this latter, when he testified that it overstated inflation by as much as a full percentage point the GOP tried to change the goods included, but the White House refused to allow this because so many government benefits, especially Social Security, utilize cost-of-living escalators. God forbid the seniors don't get their undeserved boost in their dole checks.
Posted by Orrin Judd at August 2, 2002 10:36 AM