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Good, but not good enough

Paul Krugman is not impressed (pdf) with the country's economic recovery:

Despite the praise being handed out to those who helped us avoid the worst, we are not handling the crisis well: fiscal stimulus has been inadequate, financial support has contained the damage but not restored a healthy banking system. All indications are that we’re going to have seriously depressed output for years to come. It’s what I feared/predicted in that 2001 paper: “[I]ntellectually consistent solutions to a domestic financial crisis of this type, like solutions to a third-generation currency crisis, are likely to seem too radical to be implemented in practice. And partial measures are likely to fail.”

That's my sense, as well. Indeed, a lot of the people who praise the administration's work avoiding a total collapse actually agree with the premises of Krugman's argument. The administration itself, for instance, knew the stimulus to be too small even when they though we were facing a smaller recession.

As it is, Republicans have an electoral incentive to say things are much worse than they actually are, and the economic achievements are much smaller than they've actually been. The administration and associated elected Democrats have an incentive to overstate the adequacy of the rescue efforts, and for reasons I don't totally understand, are reticent to say more is needed but they aren't able to pass further legislation through a polarized Congress. That's left us with an argument between people saying we've pretty much done enough and people saying everything we've done is wrong, when the correct answer is probably that we've done some good things, and need to do more of them.

By Ezra Klein  |  January 4, 2010; 7:00 AM ET
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Any new financial stimulus must directly create jobs. Period. Maybe the recession is "over" or "thawing" for the financial services sector or the few American auto workers who will be left after that poor industry gets done restructuring itself.

(Note that bailout recipient Chrysler's Shining Hope right now is a Fiat 500 model that will be assembled in Mexico, not the U.S.)

In other words, we need something like the W.P.A.

Yes, I know the Yowlers will claim that no federal program, once started, has ever gone away, but the W.P.A. did. And while it lasted, it helped keep millions of Americans afloat in hard times.

Meanwhile, for those of you who believe the recession is over or waning or some such, please come visit us in Bradenton, Florida, where unemployment is getting worse and local businesses are closing their doors like mad.

Posted by: roblimo | January 4, 2010 8:39 AM | Report abuse

Paul Krugman would have government institute a larger stimulus bill than the failed bill of last year.

Mr. Krugman fails to explain who would pay for the spending that would result and the resulting higher deficits and increased national debt.

No liberal/progressive/Democrat will ever cut spending. Therefore they have no problems with higher taxation and sky-rocketing inflation.

I for one do not want to return to the frightening four years that we experienced under Jimmy Carter.

Posted by: mwhoke | January 4, 2010 8:46 AM | Report abuse

As any new money supply as created as debt to the federal reserve the government can not "stimulate" anything. All it can do is continue stealing on behalf of the bankers

Posted by: LincolnsWisdom | January 4, 2010 8:56 AM | Report abuse

Human response to problems is always either over or under reaction. This is intuitively obvious as no solution ever satisfies everyone. Your final statement is exactly correct. We need to do more because there are still too many in dire straights. Also a pox on those who scream in mock pain because their curtailed remunerations disrupt their plans to wallow in excess. The reason government intervenes is because the market fails too many. Blind counteraction to return to those failed modes of the past are an indicator of how ideology threatens the progress we have made. Resist because acquiesence will doom us to unnecessary hard times.

Posted by: BertEisenstein | January 4, 2010 9:09 AM | Report abuse

The economy is not the provenance of the government. Keynsian economics has a natural appeal to those in power, because they are the ones that get to spend it, which increases their influence and thus status. However, we have been doing crazy deficit spending ever since Bush2 strolled into town. We've overstimulated, the economy is a bit of a sham, and we need this recession to reset some things that got out of whack- such as a our housing prices, our wages (especially those in finance and manufacturing, etc. We do have to cushion the blow via unemployment insurance and the like, but the fundamental asset reallocation must be allowed to occur more quickly.

The simplest thing that has been left undone is to gradually start limiting the size of the banks, by limiting access to the Fed and letting the money losers fail. The engineered buyouts to hide failures mean Countrywide and Merrill are pulling down B of A, for example. If we can't control the banks or figure out how to regulate CDS and MBS, we should at least get out of the business of giving them all of this money.

Posted by: staticvars | January 4, 2010 9:19 AM | Report abuse

i dont pretend to understand economics, but i tried to read as much as i could over this past year.
paul krugman made the most dire predictions during the heart of the crisis. he said it would take a decade until things would turn around. he talked of a depression. he scared the wits out everyone.
and i dont think things are as dire, bleak and nearly hopeless as he predicted.
he has been extremely negative about this administration.
i think there is a personal edge to his criticisms.
his commentary is important, but i dont think, in retrospect, he has proven himself to be a merlin, and his crystal ball doesnt seem so much better than anybody else's.

Posted by: jkaren | January 4, 2010 9:28 AM | Report abuse

There's whistling past the graveyard, and there's whistling past the graveyard in four-part, SATB harmony....

Posted by: davis_x_machina | January 4, 2010 9:40 AM | Report abuse

As a side note, the structure of the stimulus itself is causing some problems...

I hate it when a couple of Republicans are right as much as the next Dem, but can we at least stop thinking that all problems can be solved by throwing more tax dollars at them?

Posted by: staticvars | January 4, 2010 9:41 AM | Report abuse

We should throw tax *cuts* at them instead!

Posted by: davis_x_machina | January 4, 2010 10:28 AM | Report abuse

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