New York Times column That ’30s Show
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.
3 comments:
Krugman usually makes a lot of sense, but not this time.
Another stimulus?
I'd call that beating a dead horse. You can stimulate a dead horse all you want, harder and harder, but it ain't going to get up.
Allow me to oversimplify. Imagine a bunch of kids playing with marbles. When they start to fight over the marbles, an adult steps in, stops them from fighting, and insists that they share.
Now imagine different bunch of kids fighting over marbles, only this time with no responsible adult supervision. So they aren't forced to share and the strongest kids take all the marbles and the weaker kids don't have any.
Does Krugman thing that bringing in more and more bags of marbles to a situation like that will improve the situation?
What is needed is responsible adult supervision, requiring that people share equitably and nobody is allowed to take all the marbles.
Krugman's a smart guy and a good writer, but if he thinks another, bigger stimulus will shore up a failed system that never had any responsible adult supervision, I think he's lost his marbles.
Mark, For the moment I disagree with you on this one. I believe the stimulus should be large enough to pay their teachers and other important civil servants, and I don't think it is.
But I agree with you on the "adult supervision" thing. The kids can't do as they please with the marbles we give them. For example, the Connecticut governor has taken the stimulus money she's already gotten and used it to pay down debt, and rather than pay the teachers in Hartford where the education system is about the worst in the nation. The Federal government must require that these state functionaries be paid first or no money at all to the state.
If you agree with me on the adult supervision thing, Your Eminence, then I think you also have to agree that this is an issue where size really doesn't matter.
The same thing you describe in Connecticut happened with the banks and the corporate bailouts, which supposedly weren't intended for the purpose of executive bonuses and yacht parties.
The system without adult supervision I'm referring to is capitalism itself, Dave. Without a way for us to hold elected officials accountable, and with elected officials too dependent upon corporate campaign donations to hold corporations accountable, we're throwing money down a bottomless sinkhole. If the governor of Connecticut had gotten enough stimulus funds to pay off all the state's debts and pay the teachers, there's still no guarantee that the teachers would have been paid.
If I have a friend with gambling debts and I give him enough money to pay them off, there's a good chance that he'll run up even more gambling debts. If I give him twice as much money or ten times as much money, the odds of him gambling it away still don't change.
If I want to loan money to a needy friend, I'm not going to give the money to a bank and tell the bank, "Here's some money you can do with as you wish, but I hope you'll loan it to my friend," I'll simply loan the money directly to my friend. If I want to give money to somebody so that their house won't be foreclosed, I'm not going to give the money to their mortgage company and say, "Here's some money you can do with as you wish, but I hope you'll use it for my friend's mortgage," I'll give the money directly to my friend. If I want to pay teachers, I'm not going to give the money to an elected state official and say, "Here's some money to do with as you wish, but I hope you'll use it to pay teachers," I'll give the money directly to the teachers. And if I want to provide health care for people, I'm not going to give the money to insurance companies and say, "Here's some money you can do with as you wish, but I hope you'll use it to provide health care," I'll use it to directly pay health care providers.
Capitalism is based on a profit motive, so if you don't strictly regulate what money can be used for, I can guarantee you that as much of it as possible will be used for private profits rather than any social benefit. That's one of the many reasons why I'm a socialist.
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