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This review is from: End This Depression Now! (Hardcover)
In this book America's pre-eminent econcomist, Paul Krugman, offers his prescription for ending the depression that has been afflicting this country for five years. We know what to do, says Krugman, because the problems we have are recognizably similar to those of the 1930s. "Unfortunately we are not using the nowledge we have because too many people who matter - politicians, public officials, and the broader class of writers and talkers who define conventional wisdom - have, for a variety of reasons, chosen to forget the lessons of history and the conclusions of several generations' worth of economic analysis, replacing the hard won knowledge with ideologically and politically convenient prejudices. Above all, conventional wisdom among what some of us have taken to referring to, sarcastically, as Very Serious People has completely thrown away Keynes central dictum: "The boom, not the slump, is the time for austerity." Now is the time for government to spend more not less, until the private sector is ready to carrry the economy forward again - yet job-destroying austerity policies have instead become the rule."
One of the problems is long term unemployment. But Republican dogma says there is no such thing (ask Sharon Angle) - that anyone who wants a job can get one. Humorously, Krugman points out that the classic answer to such people comes from a passage near the beginning of the novel "The Treasure of Sierra Madre'' (the film starred Humphrey Bogart and Walter Huston): "Anyone who is willing to work and is serious about it will certainly find a job. Only you must not go to the man who tells you this, for he has no job to offer and doesn't know anyone who knows of a vacancy. This is exactly the reason why he gives you such generous advice, out of brotherly love, and to demonstrate how little he knows of the world.."
Also, to those Chicago Board of Trade people who mocked anti-equality demonstrators by showering them with copies of MacDonald's job application forms advertising 50,000 new job openings, Krugman points out that roughly one million people applied!.
In a chapter entitled "Anatomy of An Inadequate Response", Krugman points out that the predicament Obama now finds himself in is largely of his own making. Whether he could have provided bold, innovative leadership like FDR in the 1930s is problematic. He didn' even try. His stimulus package was far too small for the job. While it mitigated the recession, it fell far short of what would have been needed to restore full employment, or even to create a sense of progress. There was nothing resembling an FDR-style Works Progress Administration. (At its peak the WPA employed three million Americans or about 10 percent of the workforce. An equivalent sized program today would employ thirteen million workers.) In answer to the question whether such a program was politically possible, Krugman says that his own take is that the politics of adequate stimulus were very hard, but we will never know whether they really prevented an adequate plan because Obama and his aides never even tried for something big enough to do the job. I would also like to point out that FDR does not seem to be one of Obama's heroes (at least he never talks about him.) On the other hand we do know that Obama considers Ronald Reagan to be the most transformative president of our times!
Krugman does address the problems of the deficit and inflation - the hobgoblins of Republican minds. First of all, he says, there was and is no evidence to support the shift in focus away from jobs and towards deficits. "Where the harm done by lack of jobs is real and terrible, the harm done by deficits to a nation like America in its current situation is, for the most part, hypothetical. The quantifiable burden of debt is much smaller than you would imagine from the rhetoric and warnings about some kind of debt crisis are based on nothing much at all. In fact, the predictions of the deficit hawks have been repeatedly falsified by events, while those who argued that deficits are not a problem in a depressed economy have been constantly right. Yet exaggerated fear of deficits retains its hold on our political and policy discourse."
For the past few years - especially since the election of Obama - the airwaves and opinion pages have been filled with dire warnings of high inflation just around the corner. Some have even predicted a full fledged hyperinflation along the lines of the Weimer Republic in the 1920s. The right side of the political spectrum has bught fully into theses fears of inflation. Ron Paul, a self-proclaimed devotee of Austrian economics, routinely issues apocalyptic warnings about inflation. The failure of his presidential aspirations should not blind us to his success in making his economic ideology Republican orthodoxy. Republican congressman berate Ben Bernanke for "debasing" the dollar and their presidential candidates compete over who can denounce the Feds allegedly inflationary policies most vehemently. But they are wrong. Three and a half years after the election of Obama the interest rate is still near zero. The Fed has continued to buy bonds and mortgages, adding even more to bank reserves; and budget deficits remain enormous. Yet the averge inflation rate over that period was only 2.5 percent, and if you included volatile food and energy prices, the average inflation rate was only 1.4 percent. The inflation rates were below historical norms. In particular, as liberal economists love to point out, inflation was much lower under Obama than it had been in Ronald Reagan's supposedly halcyon, "morning in America" second term.
This book, then, says Krugman, is an attempt to break the hold of that destructive conventional wisdom and to make the case for the expansionary, job-creating policies we should have been following all along. "I am trying to go over the heads of the Serious People who have, for whatever reason, taken all of us down the wrong path, at immense cost to our economies and our societies, and to appeal to an informed public opinion in an effort to get us doing the right thing instead."
Krugman' optimism is obvious on almost every page and he thinks that this job can be done - although it will be difficult "These are terrible times, and all the more terrible because it's all so unnecessary. But don't give up: we can end this depression, if we can only find the clarity and the will."