I don’t know enough to say. Readers will note that I don’t do much econo-blogging. Krugman makes a persuasive case that there are potential problems, but for my entire adult life economists have been making dire predictions — many direr than Krugman’s — that didn’t come true. Which, of course, doesn’t mean that Krugman’s wrong to be worried this time.
My own sense is that things aren’t that bad, but I don’t trust my own sense on these matters, as I’ve been wrong before. Some years ago, I was in a liquor store when some stockbrokers came in, bought champagne, and went giddily on about how the Dow (then at about 5500) was sure to hit 10,000. “Jeez,” I thought, “we’ve clearly hit the top of the market. Time to get out of stocks and into something stable.” Fortunately, my main investment strategy of sloth laced with inattention intervened and kept me from making an expensively bad move.
So I don’t know. I’d advise people to do what I do, and pursue a low-debt, comparatively low-spending strategy of personal economic conservatism, but if everyone did that, the economy would collapse for sure. . . .
UPDATE: Not everyone is impressed.