Krugman Warns Obama that He'll Face 1937 w/out More, Massive Stimulus

I disagree with Krugman as much as humanly possible about the need/desirability of more stimulus (aka inefficient gov't spending and insane debt loads), but he makes some other well-reasoned points in this piece, IMO.

http://www.nytimes.com/2009/07/03/opinion/03krugman.html?_r=1

That ’30s Show

By PAUL KRUGMAN
Published: July 2, 2009

O.K., Thursday’s jobs report settles it. We’re going to need a bigger stimulus. But does the president know that?

Let’s do the math.

Since the recession began, the U.S. economy has lost 6 ½ million jobs — and as that grim employment report confirmed, it’s continuing to lose jobs at a rapid pace. Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we’re about 8 ½ million jobs in the hole.

And the deeper the hole gets, the harder it will be to dig ourselves out. The job figures weren’t the only bad news in Thursday’s report, which also showed wages stalling and possibly on the verge of outright decline. That’s a recipe for a descent into Japanese-style deflation, which is very difficult to reverse. Lost decade, anyone?

Wait — there’s more bad news: the fiscal crisis of the states. Unlike the federal government, states are required to run balanced budgets. And faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable. Aside from directly creating a great deal of misery, these cuts will depress the economy even further.

So what do we have to counter this scary prospect? We have the Obama stimulus plan, which aims to create 3 ½ million jobs by late next year. That’s much better than nothing, but it’s not remotely enough. And there doesn’t seem to be much else going on. Do you remember the administration’s plan to sharply reduce the rate of foreclosures, or its plan to get the banks lending again by taking toxic assets off their balance sheets? Neither do I.

All of this is depressingly familiar to anyone who has studied economic policy in the 1930s. Once again a Democratic president has pushed through job-creation policies that will mitigate the slump but aren’t aggressive enough to produce a full recovery. Once again much of the stimulus at the federal level is being undone by budget retrenchment at the state and local level.

So have we failed to learn from history, and are we, therefore, doomed to repeat it? Not necessarily — but it’s up to the president and his economic team to ensure that things are different this time. President Obama and his officials need to ramp up their efforts, starting with a plan to make the stimulus bigger.

Just to be clear, I’m well aware of how difficult it will be to get such a plan enacted.

There won’t be any cooperation from Republican leaders, who have settled on a strategy of total opposition, unconstrained by facts or logic. Indeed, these leaders responded to the latest job numbers by proclaiming the failure of the Obama economic plan. That’s ludicrous, of course. The administration warned from the beginning that it would be several quarters before the plan had any major positive effects. But that didn’t stop the chairman of the Republican Study Committee from issuing a statement demanding: “Where are the jobs?”

It’s also not clear whether the administration will get much help from Senate “centrists,” who partially eviscerated the original stimulus plan by demanding cuts in aid to state and local governments — aid that, as we’re now seeing, was desperately needed. I’d like to think that some of these centrists are feeling remorse, but if they are, I haven’t seen any evidence to that effect.

And as an economist, I’d add that many members of my profession are playing a distinctly unhelpful role.

It has been a rude shock to see so many economists with good reputations recycling old fallacies — like the claim that any rise in government spending automatically displaces an equal amount of private spending, even when there is mass unemployment — and lending their names to grossly exaggerated claims about the evils of short-run budget deficits. (Right now the risks associated with additional debt are much less than the risks associated with failing to give the economy adequate support.)

Also, as in the 1930s, the opponents of action are peddling scare stories about inflation even as deflation looms.

So getting another round of stimulus will be difficult. But it’s essential.

Obama administration economists understand the stakes. Indeed, just a few weeks ago, Christina Romer, the chairwoman of the Council of Economic Advisers, published an article on the “lessons of 1937” — the year that F.D.R. gave in to the deficit and inflation hawks, with disastrous consequences both for the economy and for his political agenda.

What I don’t know is whether the administration has faced up to the inadequacy of what it has done so far.

So here’s my message to the president: You need to get both your economic team and your political people working on additional stimulus, now. Because if you don’t, you’ll soon be facing your own personal 1937.

 

Insanity: doing the same thing over and over again and expecting different results

 

Another fool educated far beyond their intelligence....but yet has a podium....

 

That's the way it always is in politics. When your policy fails, blame the opposition and try to expand the policy that failed.

It doesn't matter how big a failure that this policy is, Krugman and his ilk will <b>never</b> admit it.

 

I think its pretty obvious at this point that the "stimulus" didn't put any of the unemployed to work, no matter how much money is printed, and all we are doing is burying future generations in massive, no MASSIVE amounts of unpayable debt.

 

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1000% Correct !!!!!!!!!!!!!!!!!!!!!

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Structural changes are required....and have not been put in consideration to this day....

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What could happen to a country that adopts a 15% Consumption tax....no other taxes.....?

What could happen to world business that had true access to a universal securities exchange whereby all transactions are tax free.....in the currency of choice....with fact based wiki format information.....?

What would happen to valuations in general ?

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The above alone would dwarf all economies in size....jobs....talent....individual freedoms....wealth distribution.....checks and balances vs mal aligned politicos....
tools to select and protect wealth....product availability.....the list just gets longer and longer.....

The direct opposite is happening in the US and Europe....

 

There are so many inflation fear-mongers doing their job out there that I'd be very very surprised for US congress to pass any further debt-financed stimulus over the next 24 months.

 

Not to mention the public is so pissed off about the possibility of more money being spent that they will likely write in to all their leaders seeking re-election. After the bailout flop with AIG, Citi bonuses, etc....no one wants another package.

 

Why does Krugman never even consider the precepitous position of the US dollar, nor the magnamious stature of the US debt and the imminent default and/or monetization thereof?

 

He's a Socialist.It's like a religion to them.Would you allow even a tiny chink in your religious faith to develop?