Here is something amusing to me. So according to Krugman Japan fell into a liquidity trap by lowering interest rates in the 1990s until they couldn't be lowered anymore. Yet now he is advocating that we need to keep our own interest rates at 0% AND purposely raise inflation to 4-5%.
Krugman had argued in The Return of Depression Economics (Released April 28, 2005) that Japan was in a liquidity trap in the late 1990s, since the central bank could not drop interest rates any lower to escape economic stagnation.
(CNN Money May 11, 2012) Now comes a group of progressives, led by Nobel Laureate economist Paul Krugman, who propose, you guessed it, more consumer borrowing and spending as the main solution to our economic woes. They advocate aggressive action by the Fed to keep interest rates near zero, as well as to raise the inflation target to 4%-5%. They argue that consumers, enticed by low interest rates, will borrow and spend more while those of us who have built up savings will start spending those savings rather than let higher inflation erode their value.
Ah the hypocrisy.