New vs. Old Keynesians and self-correction

Why Keynes wouldn’t have too rosy a view of our economic future by Mike Konczal

Auto-Corect Nt Wokring (Wonkish) by Krugman

Cheap Thoughts on the Self-Correcting Economy: Konczal vs. Krugman by Dean Baker

In short, it doesn't look like the long-term holds out much hope for much of a rebound in these components of private sector spending. Net exports, the one major item that both Konczal and Krugman left out, is more promising. We continue to run a trade deficit of more than 3 percent of GDP, which would likely be over 4 percent of GDP if we were at full employment. This is sustained by developing countries buying up vast amounts of dollars to hold as reserves. This props up the dollar and allows them to keep their export markets in the United States. In effect, they are paying us to buy their stuff.

At some point developing countries will realize that they don't have to pay us to buy their stuff, they can pay their own people to buy their stuff. When they come to understand this fact, they will stop buying dollars and the dollar will fall against the currencies of our trading partners. This will make U.S. goods more competitive internationally, leading to more exports and fewer imports, and a return to full employment.

Anyway, this is the happy long-run story, but don't hold your breath on it. If you want to see people get back to work anytime soon the government is going to have to do it. And that's true no matter how much you like the private sector.

UPDATE: More here (Krugman), here (Baker), here (Rowe), here (Yglesias) and here (more Krugman).