The U.S. government should consider up to $1 trillion more in stimulus spending and should not seek to address deficit concerns until the unemployment rate returns to “around 7 percent,” says economist Paul Krugman.
Krugman, a New York Times columnist and leading voice in the current public debate over deficits and spending, told On Point host Tom Ashbrook Wednesday that he remains worried about the American financial future, unless more government money is pumped into the economy.
“I’m deeply concerned that we may be in this trap of high unemployment, probably deflation, for a very long time,” said Krugman, who won the 2008 Nobel Prize in economics. “I mean, under current projections, which I think are over-optimistic, we might not be seeing anything that looks remotely like full employment until well into Sarah Palin’s first term.”
Listen to an excerpt from the interview:
Krugman said that with an “adequate program” of stimulus spending he would expect the unemployment rate to drop to near 7 percent in 2011. At that point, he said, the government could pivot toward addressing deficit concerns by making a “deal” with the Federal Reserve, which will eventually want to raise interest rates as the economy recovers. He said austerity measures could be implemented with the understanding that the Fed would hold off on a rate hike, in order to maintain economic momentum.
Ashbrook also asked Krugman about political resistance to more spending, particularly from more conservative Democrats. (For a clear presentation of the nuanced positions within the current Washington debate see Ezra Klein’s blog today for the Washington Post.)
“I think the Blue Dogs, the conservative Democrats who are opposing this, are being really, really stupid even from a political point of view,” Krugman said. “They look at polls and say, ‘Well, the public is worried about deficits.’ Well, the public is actually worried about jobs.”
For a contrary view, see what Harvard economic historian Niall Ferguson told On Point recently about Krugman’s pro-stimulus ideas.