Paul Krugman: Too Little of a Good Thing

[cal04]

http://www.nytimes.com/2009/11/02/opinion/02krugman.htm...

The good news is that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would. But that’s also the bad news — because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we’re looking at many years of high unemployment.

And the really bad news is that “centrists” in Congress aren’t able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation.

About that good news: not that long ago the U.S. economy was in free fall. Without the recovery act, the free fall would probably have continued, as unemployed workers slashed their spending, cash-strapped state and local governments engaged in mass layoffs, and more.

The stimulus didn’t completely eliminate these effects, but it was enough to break the vicious circle of economic decline. Aid to the unemployed and help for state and local governments were probably the most important factors. If you want to see the recovery act in action, visit a classroom: your local school probably would have had to fire a lot of teachers if the stimulus hadn’t been enacted.

And the free fall has ended. Last week’s G.D.P. report showed the economy growing again, at a better-than-expected annual rate of 3.5 percent. As Mark Zandi of Moody’s Economy.com put it in recent testimony, “The stimulus is doing what it was supposed to do: short-circuit the recession and spur recovery.”

[DJ13]

1. As much as I respect Krugman, I think he's missing a crucial point

Theres no guarantee that the administration (of either Bush or Obama) ever really intended to actually solve the economic crisis with the stimulus.

On the contrary, theres just as much evidence their sole concern was with maintaining the economic health of the top income brackets, not trying to alleviate the economic suffering of the other 95% of the populace.

If thats the case Krugman doesnt understand that the stimulus WAS a success based on its real purpose.

[bbgrunt]

2. good point.......but since the aid to state and local governments

only a temporary thing, what do you think they will do when the stim runs out? simply pass another inadequate one? Or is this stimulus just giving the investment class time to get their money out of dollars before super inflation and collapse hits?

[MarjorieG]

3. Why always assume the worst motives to the admin? Given varied opinions at the time, Congress'

efforts to actually reduce stimulus, the need to save state gov'ts which must balance books by law, just so much we could do at the rime, and be ready to immediately spend on health care and climate change in the middle of the disaster.

Just not so simple.