"I'm not sure that fits Krugman exactly. Summers, yes, no doubt, but Krugman seems more open to political explanation. Christ, he was quoting Kalecki on the risks of full employment just a few months ago."
Right, and he was also --- in a recent lecture (video posted somewhere on the web) --- making the argument that (my words) EU austerity is not inexorable, but a strategic choice aimed at weakening workers, undermine their social conquests, etc. I'm not a knee-jerk anti-Krugman. That's why I'm mystified by his sudden endorsement of Summers' "secular stagnation" theory.
Check out Summers' speech (it starts at 45'):
What I got was:
1. Before the financial panic, aggregate spending was not stressing capacity utilization or lowering unemployment to levels threatening to trigger accelerating inflation.
2. After the financial panic, in spite of the acceptable response by the Fed and government, in spite of the banks being nicely rescued, the private sector didn't increase spending as one would expect.
3. It is not a uniquely U.S. phenomenon, but common to rich capitalist societies.
4. R&R are right about financial crisis being deeper traumas and/or the demographic/technological/institutional parameters of rich capitalism have shifted; in other words, the Wicksellian "natural" interest rate (the one consistent with the exogenous parameters of the economy: demographics, technology, culture) has dropped to negative territory: "secular stagnation."
5. As far as policy is concerned: Monetary policy can help stop the bleeding, restore some financial normalcy, but it cannot affect the Wicksellian "natural rate of interest," lift it up to levels that would make the private sector make up for the spending gap.
Here's my reply: So what? What kind of Keynesians are you if you are now believing that you have to tail rather than lead the private sector?
By the way, in the Q&A part, Bernanke noted in passing that the crisis --- not being anything like the destruction of the country's productive wealth by some natural resource, but being instead a human-made disaster --- called for other (non-austerity) measures.
It seems to me that they would love to wash their hands and pass the buck. Bernanke, in spite of the Fed's official mandate, told Congress it was mainly up to fiscal policy to deal with the recessionary gap. If he didn't think the law granted him the tools to accomplish the Fed's mission, why didn't he ask for expanded powers? Or, if Congress refused, why didn't he resign in protest?
They make noises, but they do neither name names nor take actions showing they are serious about their noises. Capitalism, the inherent tendencies of the system, can always be used as the place where the buck ultimately stops.