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Krugman: Four More Years of Unemployment (Video)

Ever since the $787 billion stimulus package passed earlier this year, economist Paul Krugman has been the squeaky wheel moaning about its small size.

“The stimulus bill looks helpful but inadequate, especially when combined with a disappointing plan for rescuing the banks,” he said at the time. “The complacency now setting in over the state of the economy is both foolish and dangerous,” he’s said since, in column titled “Mission Not Accomplished.” And at a recent talk at White & Case for the Hudson Union Society, he kept up the drumbeat:

After a banking crisis, unemployment doesn’t even begin to fall until after five years have passed.

I wrote umpteen columns saying it wasn’t big enough. Turns out, given what we now know, it should have been twice as big.

In some ways, we’re in a more difficult position than earlier ths year. Earlier this year, the world was collapsing, almost everyone could be mobilized. Now it’s more like we’re stagnating. We’re not dealing with the massive unemployment created by the crisis.

Krugman thinks we need to go back to the till. I’m inclined to agree with his argument, in that until the market catches up and becomes entirely self-sufficient again (or almost entirely), something’s gotta prime the pump. Not everyone agrees with Krugman, including my partner Sara, who thinks we’ve spent “WAY WAY WAY” too much money. She’s accompanied by some smart folks who have parsed out his argument, people like the economics blogger Felix Salmon (our former co-worker from Portfolio.com), who noted in July (and by the way, we realize these are old notes, but as these arguments haven’t evolved much the age of them doesn’t seem relevant):

In an efficient market, a credible government promise to invest hundreds of billions of dollars in mass transit and nuclear power and smart electrical grids and so on and so forth would have an immediate stimulative effect: people would start spending now, in anticipation of all those government dollars which are going to arrive in a few years’ time. But we’re in a liquidity crunch, and we’re not in an efficient market, and unfortunately government spending only seems to cause any stimulus as and when the checks are written, if then. (Insofar as they go to companies who are running down their inventories, there’s no stimulus at all.)

And added a note later from Brad DeLong:

And Brad DeLong responds, saying that of the $787 billion earmarked in the stimulus bill, only $14.5 billion has been spent so far, and that total will barely exceed $50 billion by October. Which seems to me a good reason why we don’t need to increase the total — we’re having a hard enough time spending the money we’ve already got.

See Krugman’s recent argument here (via FORA.tv):

Tags: economy, financial crisis, Paul Krugman, recession, stimulus