Pres. Obama Should Have Listened to Paul Krugman

He had it right all along about the size of the stimulus package:

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.

Steve Clemons points out that the real unemployment rate is far higher than the 9.5% official figure for June:

Each month, I receive from Leo Hindery an update on “America’s effective unemployment rate” which includes not only the official unemployment figures but other data points showing off-the-books unemployed or underemployed people.

The numbers are staggering and are aggregates of official data. They matter because various Obama administration officials including the President himself started off calling for huge stimulus packages to help generate “jobs, jobs, jobs!”

Plus, points out Ezra Klein, “We’ve also got about 9 million workers who are part-time because they can’t find full-time work. That’s up from 5 million workers in June.”

MSNBC’s First Read blog has a few details Republicans are forgetting ignoring in their stampede to call the stimulus package a failure.

Here is Paul Krugman again on why a much larger stimulus package back in January would have helped prevent what we’re seeing now:

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.

One sector of the economy continues to do well:

Meanwhile, Wall Street payouts are not dropping. They are, in fact, expected to exceed last year’s average. According to The Wall Street Journal, Goldman Sachs will be shelling out a whopping $20 billion (or $700,00 per employee) while Morgan Stanley’s payouts are expected to exceed last year’s packages, reaching an average $340,000.
[...]
Goldman Sachs and the other Wall Street elites are thus continuing down the same path of profiting handsomely off the mess they’ve created, and laughing (at the taxpayers) all the way to the, uh, bank.

3 Responses to “Pres. Obama Should Have Listened to Paul Krugman”

  1. JohnHolmes says:

    Obama and Krugman are heading down the FDR road, temporary jobs funded with federal dollars … make work jobs. Seems we haven’t learned our lesson in History and Economics. Krugman should know better, but he’s a Liberal first, economist second.

    Add on the Debt and Interest Payments from the Obama Debt, continued job “funding” via more stimulus, higher taxes, Global Warming Legislation and Health Care Legislation will stifle real jobs and growth in the Private Sector. It’s like hammering even more nails in the economic coffin.

    Seems Obama wants US to fail ….

  2. tas says:

    I know I’m also a liberal first and, I dunno, thinking person second or something — but when we discuss “hammering nails in the coffin,” I can’t help but point the finger at the previous administration. It was the first act of the Bush administration to blow the federal surplus on a $1.35 trillion tax cut (mostly to the rich) in 2001; it was the Bush administration that didn’t finish the job in Afghanistan and dug us into an unnecessary hole in Iraq. Additionally, it was the Bush administration which did jack over 8 years for our growing health care problem, which needs to be addressed. Perhaps Obama is taking on too many tasks right now, but there’s a cause and effect relationship here — the cause is Bush.

    That said, I’ve been screaming about the lack of job creation money on Obama’s stimulus about a week before he took office. He hasn’t done enough. I don’t think it’s accurate to say that Obama is following in FDR’s footsteps; or that following in FDR’s footsteps would be a bad thing. When FDR was in office and instituted job creation, the GDP grew by leaps and bounds — it was like China and India combined. But the economy was so far in the crapper that it almost didn’t matter. Unemployment was at 25% when FDR took office, that’s how bad the economy was during the Great Depression. Of course, the point of temporary government jobs like infrastructure repair is to keep greenbacks flowing to families and serve as an economic buoy so things don’t fall further. Eventually though, the banking and business sectors must work together to be our biggest economic engine. It’s the government’s job to buy time for both of these sectors to work their magic, so to speak.

    The Obama administration has not done an adequate job of creating enough temporary jobs to buy the financial and business sectors’ time. Of course, at the same time Obama must contend with problems like health care which threaten to tank the economy in the future. It’s not a simple job — Obama is in one of the tougher positions any new president as had to face. I do not envy him, but one still must be critical of him. At the same, though, complaining about government spending isn’t a solution. For all the faults of Obama’s stimulus package, nobody on the other side of the fence has provided anything even remotely close to a reasonable solution to our economic woes.

  3. JohnHolmes says:

    I don’t disagree with everything you say above tas, just most of it. If you really are a thinking person consider this: Firstly, the Bush tax cut didn’t cost the government anything, the economy is NOT a fixed size pie … the tax cuts put more money in the hands of people who spurr job creation and growth. Receipts to the Treasury actually went up, spending went up even faster … According to most Economists we are at a much higher taxation rate than the optimum point at which Tax Revenue is also maximized (think 2 lines intersecting on a graph). Spending created the deficit, not taxes, plain and simple. Just go to the Treasury Dept. web site and compare tax receipts with spending over the years, it’s so obvious, we overspend !!. So from my perspective if Bush and the GOP Congress should be chastised for anything it should be overblown drunken spending, it’s like they became Democrats.

    I don’t envy Obama’s position either, but its like he’s doing the exact opposite of what’s needed to spur growth. Massive spending combined with huge tax increases on the growth engine are no recipe for a recovery … only a prolonged recession … like we are experiencing now. Taxing rich people even more never helped jobs either, their spending creates jobs, if you tax it away they will hunker down, they won’t invest and they won’t spend. Also, lest we forget .. Bush inherited a recession from Clinton, part of the Business cycle more than anything Clinton did .. then 9/11 happened a few months later. Bush did not inherit some great economy, but the underlying fundamentals were still strong (re: the banks hadn’t collapsed). The Bush tax cut helped get Business and money flowing, helped spur the creativity and genius of the American people, and create jobs. I’m not totally against spending plans like FDR’s, putting money in the Family Budget as you say makes sense to a point to cover the gap .. but this stimulus plan combined with the Fannie/Freddy/Bank and Auto bailouts seems beyond frivolous. We’re dumping money into a hole and the Stimulus money has barely made it out (like 6%). FDR’s recession lasted for some 12 years all the way through WW2, that’s hardly an economic policy that worked. Your GDP assertion during those years is kinda false .. if the Government prints/dumps money into the Economy GDP “technically” will rise yet few if any sustainable jobs are created. GDP doesn’t factor in the debt created by those “jobs”. The Military spending during WW2 inadvertently boosted Companies and fostered new industries after the War. Aviation is one example, it boomed after the War and created plenty of “real” jobs which have lasted to this day.

    Bush tax cuts and economic policy didn’t cause this recession. Although Bush and Congress plus Federal Regulator’s asleep at the wheel can be blamed for their lack of oversight resulting in 30:1 leveraging and beyond, maniacal Credit Default Swaps, red-ink laced bloated budgets across all Government Entities, overblown Real Estate Deals to people who cannot afford it, crazy lines of credit to virtually anyone, etc. Greed, Ignorance and the Federal Enablers created this crisis.

    I could go on and on forever. Tas: your first reaction is always to blame Bush and Republicans. They certainly did not help, but this situation goes beyond political blame gaming, it’s a rather sophisticated combination of things. Like a tsunami and an earthquake happening at once followed by a tornado.

    In my view a tax cut would do more to create jobs and get the economy moving far better than any bloated, inefficient government stimulus plan which uses bureaucrats and government officials rather than market forces (Individuals) to determine where and how to spend.

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