Krugman on the too-timid stimulus of 2009

Paul Krugman in The Real Story New York Times 09/02/2010 recounts the history of dueling predictions on the adequate and effects of the 2009 stimulus bill. The national deficit was a phantom fear then, and is still so today.

But the too-small stimulus is one of the key events in what is likely to be remembered two years of squandered opportunities by Obama and the Democrats. Their electoral prospects in November are threatened by the ailing economy and high unemployment. Krugman writes, "The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn't applied on a sufficient scale. And we need another round." As he notes, we are unlikely to get it. Or at least much of it. And even "Japanese-style deflation is looking like a real possibility," he says, referring to the still-lingering underperformance of the Japanese economy in the wake of their own burst financial bubble in the 1990s.

Krugman gives a somewhat different take on the history of the stimulus at his blog in The Economic Narrative 09/01/2010. Here he focuses on the dangers of disinformation and bad analysis obscuring the real lessons of the 2009 stimulus:

The way the right wants to tell the story — and, I'm afraid, the way it will play in November — is that the Obama team went all out for Keynesian policies, and they failed. So back to supply-side economics!

The point, of course, is that that is not at all what happened. A straight Keynesian analysis implied the need for a much bigger program, more oriented toward spending, than the administration proposed. And people like me said that at the time — we're not talking about hindsight.

And also at his blog, Paradoxes Of Deleveraging And Releveraging 09/03/2010, he gives a useful sketch of why a badly misguided focus on the deficit - which Democratic policymakers seem to actually take seriously while Republicans use deficit hysteria to opposed Democratic programs like Social Security - could wind up prolonging the current Great Recession by far longer than necessary.

Finally, if you're in the mood for David "Bobo" Brooks, his latest New York Times column is about his fantasy of what could have been of Obama had been even more impressed with Herbert Hoover economics from the first day of his Presidency: The Alternate History 09/02/2010.

Tags: us economy