Behind the Curve: Krugman

[depakid]

President Obama’s plan to stimulate the economy was “massive,” “giant,” “enormous.” So the American people were told, especially by TV news, during the run-up to the stimulus vote. Watching the news, you might have thought that the only question was whether the plan was too big, too ambitious.

Yet many economists, myself included, actually argued that the plan was too small and too cautious. The latest data confirm those worries — and suggest that the Obama administration’s economic policies are already falling behind the curve. To see how bad the numbers are, consider this: The administration’s budget proposals, released less than two weeks ago, assumed an average unemployment rate of 8.1 percent for the whole of this year. In reality, unemployment hit that level in February — and it’s rising fast.

Employment has already fallen more in this recession than in the 1981-82 slump, considered the worst since the Great Depression. As a result, Mr. Obama’s promise that his plan will create or save 3.5 million jobs by the end of 2010 looks underwhelming, to say the least. It’s a credible promise — his economists used solidly mainstream estimates of the impacts of tax and spending policies. But 3.5 million jobs almost two years from now isn’t enough in the face of an economy that has already lost 4.4 million jobs, and is losing 600,000 more each month.

There are now three big questions about economic policy. First, does the administration realize that it isn’t doing enough? Second, is it prepared to do more? Third, will Congress go along with stronger policies? On the first two questions, I found Mr. Obama’s latest interview with The Times anything but reassuring.

“Our belief and expectation is that we will get all the pillars in place for recovery this year,” the president declared — a belief and expectation that isn’t backed by any data or model I’m aware of. To be sure, leaders are supposed to sound calm and in control. But in the face of the dismal data, this remark sounded out of touch.

And there was no hint in the interview of readiness to do more.

A real fix for the troubles of the banking system might help make up for the inadequate size of the stimulus plan, so it was good to hear that Mr. Obama spends at least an hour each day with his economic advisors, “talking through how we are approaching the financial markets.” But he went on to dismiss calls for decisive action as coming from “blogs” (actually, they’re coming from many other places, including at least one president of a Federal Reserve bank), and suggested that critics want to “nationalize all the banks” (something nobody is proposing).

As I read it, this dismissal — together with the continuing failure to announce any broad plans for bank restructuring — means that the White House has decided to muddle through on the financial front, relying on economic recovery to rescue the banks rather than the other way around. And with the stimulus plan too small to deliver an economic recovery ... well, you get the picture.

More: http://www.nytimes.com/2009/03/09/opinion/09krugman.html

Not a pretty picture- but an accurate one.

It's looking more and mmore like the Obama administration's economic team just doesn't get it.

[EVDebs]

1. Krugman's latest editorial called it 'dithering'

http://www.iht.com/articles/2009/03/06/opinion/edkrugman.php

[JDPriestly]

2. Thanks for posting this.

[MarjorieG]

3. I doubt the admin. could have have pulled anything larger at the time.

We also can't shoot our dwindling wad at once. But so glad Krugman always second guesses the team as if all politics is possible.

He always criticizes as it the team doesn't understand, making snide judgments of incompetence that undermine confidence.

Sorry, but I'm really tired of his rants as not helpful.

[Larkspur]

5. Whatever happened to the "Yes We Can" mantra?

Obama should have asked for $2 trillion or at least a trillion and a half and then bargained down from there, but no, Obama had to pre-compromise with the Republicans and he still could only get 3 Republicans to vote for his stimulus bill.

[MarjorieG]

10. The economy is a shooting target, needs and opinion changing daily.

There was also agreement at the time not to put that much in at once.

[Larkspur]

4. I agree with Krugman

I'm no fan of the Rubin disciples -- Summers and Geithner. Rubin helped the Republicans create the mess we're in now by supporting deregulation of the banks and financial institutions.

I was laid off last year and the job market for my mainframe skills is essentially non-existent right now. I'm spending time taking classes to upgrade my technical skills but I need Unemployment benefits to continue if the job market remains closed. And hoping that the recession will break in a year or two is criminal on the part of our politicians, including Obama.

[Juche]

6. What is the administration scared of

Are they worried about blowing political capital, turning the public against them, depleting the treasury or what?

My understanding of this crisis is that it would take a stimulus of spending (no tax cuts) of about $2 trillion combined with bank nationalization to get us out of this mess. Obama doesn't seem willing to do that.

If we keep losing 500k jobs a month by summer we will be at 10% unemployment and about 20% underemployment.

[Danascot]

11. Too little ... not too late yet but it's getting there

Maybe it’s the hesitancy of being new in office; Maybe it’s an attempt to act in a bipartisan manner by incorporating measures they think Republicans will support; Maybe they are afraid that confronting the American people and the world with the true enormity of the problem would create panic; Maybe they’re trying to plot a middle course through the range of remedies advocated by various economic and financial experts; Maybe they don’t really grasp how serious the problems are and how dangerous it is to try to fix them by covering up what amount to severe internal injuries and festering wounds with band-aid solutions.

Whatever the reason for caution, it isn’t working and it’s not enough.

<snip>

Dithering and half-way measures won’t get us where we need to go. We need big, bold actions and we need them now. Unless a lot more is done and done soon, the course of the economy and the plans of the administration articulated so far will result in a crisis that will last far longer than Americans will be able to tolerate. If not enough is done, we are in for years of misery and ultimately the diminution of the United States as a nation.

http://www.crashsurvivalzone.com/fear-itself/

[Demeter]

7. those Who Complain About Krugman Are Shooting the Messenger

because they didn't like getting bad news.

It's bad, it's getting worse, Geithner isn't doing the job for which he was hired, but his old job of preserving Goldman Sachs.

Obama doesn't need Congress to nationalize banks. He just needs to admit the necessity and do it.

[northernlights]

8. he couldn't have asked for more

and gotten the votes needed to pass. He barely passed it as is.

But he did lay the groundwork to get more, by making a sincere attempt to work with republicans. Everybody got to see they are obstructionists -- including people who don't read DU -- so he's rallied the grass roots support needed to push forward without them.

And there is nothing that says he needs to wait until September to ask for more. They can continue to find ways to create jobs that invest.

Likewise, with nationalizing the big banks, they can incrementally take them over without calling it nationalization and freaking out the people that think that would mean the end of the world.

[NJCher]

9. yes, small gains theory

He laid the groundwork and now the republicans will see that what they were screaming about isn't enough. That's about all one can do for now.

Krugman is valuable, though, as he points the way.


Cher