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Paul Krugman: $1 Trillion More in Stimulus

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.

Paul Krugman (AP)

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.

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  • jo

    This guy is so radical it is scary.

  • Laurence Glavin

    Sometimes it’s a good idea to watch a rerun of a previous “60 Minutes” episode. A couple of weeks ago, Steve Kroft’s segment about enemies of the U.S. hacking the internet was rebroadcast, and something that might have escaped my notice last fall really resonated this time. It was revealed that there’s an integrated-circuit chip lab at Sandia, NM because ALL COMPUTER CHIP MANUFACTURING HAS BEEN OUTSOURCED TO OTHER COUNTRIES! Thus the Department of Defense and NASA can’t take a chance on using chips from these sources in their devices and must manufacture their own. (That episode also described how hackers could destroy an electric grid generator, and these also are not manufactured in the U. S. either!) All of this outsourcing of vital industries was achieved by corporate executive seeking to boost their bonus and stock options without regard to the consequences of such actions on the American economy, and the employment of Americans in such industries.

  • duh’oh!

    Jo,
    What’s so radical about Krugman? All he’s recommeding is more of the exact same approach to the economic crisis as did Bush and now Obama. It’s basic Keynesian economics where gov’t spending stimulates the rest of the economy. Has worked darn well so far, but is sputtering, so he’s just saying do it more, and you’ll get more of a response fromt the rest of the economy warming up a bit more. Not radical. Practical. Proven. Prudent.

  • P.A.Robinson

    Paul Krugman is a scholar of the great Depression. He won the NOBEL for his work on that subject and makes a lot of sense. The great Depression was a doubler and did not really end until the start of our involvement in WWII. It dragged on because interest rates kept money scarce.

    I wish he was the Chair of the Federal Reserve because our economy would be ‘cooking’ about now. The man makes sense now and his Keynesian path would work better.

  • Chris Woodhouse

    What about the concept of value for money? If you use public funds to build stuff, after the job created is finished and gone, you still have the stuff to use into the future. Stuff like solar power plants, roads, bridges, well educated children, new scientific discoveries and technology. Why isn’t that just wise investment?

  • Kady

    Dr. Krugman has not yet figured out that we live in a democracy. If there is any additional stimulus, it will be the public that will determine that, and it’s pretty clear that the public will not tolerate anything near those sorts of numbers, if any at all.

    So, Dr. Krugman, if you want to help, you’ll need to think outside the Keynesian box and come up with ideas that Congress can pass. Thanks.

    Also, a correction to the poster P.A. Robinson: Dr. Krugman did not win a Nobel for any study of the Great Depression, and he is not considered a “Depression” scholar. His Nobel was for theories related to international trade and money flow, if memory serves.

    Kady

  • K.D.

    I am not understanding Dr Krugman. How does he plan to pay for this debt? Taxes? Does he not understand how this will hurt our children and grandchildren in the future?

  • Tauros

    I wonder if many of the critics of Paul Krugman’s proposal are still drawing salaries within a shrunken labor force or if they are at home, still unemployed after two years of looking for work with little chance of finding it.

    There is little question that a high risk of deflation remains as long as unemployment and consumer debt levels remain very high in an economy with meager growth prospects and a financial sector gummed up with toxic assets. I’ll take re-flation through aggressive stimulus spending over deflation any day.

  • DonaldB

    Right now business is SITTING on lots of cash because they don’t see any buyers; factories are at well below capacity, so why would they build new factories; with FIVE job seekers for every available job, why would an employer not tell a current employee to work some overtime (avoiding the overhead of an additional employee) instead of hiring a new one (unless it is a replacement for an employee refusing (unpaid?) overtime. With deflation prospects even the rich will postpone purchases, waiting for cheaper prices (luxury spending down 4% last month!).

    With FIVE job seekers for EVERY job, how do tell 12 million of the 15 million unemployed that they have to generate their OWN jobs?

    And business leaders stated recently that current workers do NOT have the required SKILLS for the jobs they do want to hire for.

    Unemployment insurance payments need to require accompanying training, but money to pay for the work this country needs done must come from the ONLY place that can provide it before the country enters a REAL down-spiral that will take a decade or more to recover from.

    That is what Krugman wants to accomplish.

    Last year China created a stimulus that, relative to its economy, was over 2 times larger than our $775 billion, and it has recovered and is basically back to where it was before the crisis. But the Democrats, with the three Republicans, were too timid to address the full problem and followed Japan’s half-hearted nibbling steps and, while it kept the economy from falling further, did NOT get things going strongly enough to result in an employment surge.

    Good luck to us if we do not follow this advice, because we will need it.

    Note: under the current course, the innocent people who WILL pay exorbitantly, for the rest of their lives, are the currently unemployed and, maybe even more important, those that just graduated from high school or college (or will in the next few years) and cannot find a job or only a lesser one that stymies their career development for life. It would be fairer if we got job recovery going immediately and then spread the costs over all segments of society when we have a better economy.

  • DonaldB

    Reagan actually RAISED taxes THREE times!!

  • Fred

    America’s incessant addiction to credit has us headed straight down the road to bankruptcy. And Krugman’s advice? Mash down the accelerator. Brilliant.

  • http://freeourfreemarkets.org. steve banicki

    Even the great Paul Krugman gets confused between big business and “free Markets.

    When markets are free, they produce what the consumer wants at the highest quality possible at the lowest price. Presently, many of our markets are not doing this. The reason is many of our markets are not free. Instead, they are controlled by a few, very large, organizations that formed oligopolies; a market situation in which each of a few producers affects but does not control the market.

    These large oligopolies in turn are looking out for their rational self-interest, which is to keep the oligopoly alive and have it prosper. In a free market, it is in the rational self-interest of the producing corporations to provide the consumer the best possible products at the lowest possible price. In this manner, the corporation maximizes its profits because it is meeting the needs of its customers.

    As a member of an Oligopoly, a company has less concern about keeping costs down because the consumer has fewer choices than he would have if it were a free market. Costs tend to rise because members of the oligopoly can more easily work in tandem to control the market including prices and cost. This is the major reason why salaries of the companies in an oligopoly have become so egregious. Any increase in compensation to corporate executives of these oligopoly companies are passed on to the consumer because other members of the oligopoly can do the same thing.

    We need to do three things immediately.

    1. Stimulate the economy with “wise spending”, Spending that we do either now or later, and spending that will job start wise investments. (Frankly, a good way to pay for this is to tax the above oligopolies and the senior management of these companies.)
    2. Develop a viable plan to bring down the deficit in the future, out two or three years.
    3. Break up the oligopolies that have taken over some of our key industries and revise campaign laws so our Washington representatives actually represent us.

  • FED Up

    I am so surprised how this stupid guy got a Nobel prize!

    A problem caused by too much debt can never be solved by taking on more debt. In no economic history has that been proved. And it doesn’t make common sense.

    Obama will spend till his second term and then if re-elected, he’ll stop that because the debt will be some trillions of dollars. Then Krugman will say lets spend till we have hyper-inflation by printing dollars. You’ll understand this if you study the history of various economic cycles over the last 100 years.

  • Jim

    I tend to agree with Steve that we are more of an oligopoly then a free market economy and this was allowed to happen because our anti-trust laws were not enforced. We may have a free market economy at the local levels, i.e., plumber vs. plumber or electrician vs. electrician, etc.
    Today we have a few mega corpations calling all the shots and the labor force is suffering. Jobs are being exported in the name of competition (by the megas) so the CEO’s and executives can get their huge bonuses, however, the down side of this is the 10% plus of the labor force that is out of work (which could get worse), and their jobs may never return. We are not at the economic equalibrium where supply equals demand and we have not been there since President Reagan encouraged his voodoo economics or supply sided economics: reduce the supply and the demand will increase.
    Today we are in global economic competition, where megas from other countries are competing with each other, including the U.S.A. The problem here are the wages, they are not equal and the workers of countries with higher wages suffer. This comes about because the megas helped develop the industry in the poor wage countries at the expense of their own workers, in the name of competition, which translates into large bonuses for the Executives and CEO’s.
    We need to enforce the anti-trust laws and break up the ogolopolies and monopolies and use an additional stimulus money to really help our country get out of this mild depression.
    There are the People that worry about their children or grandchildren paying for the stimulus, well, I have news for them, everybody will suffer because we will revert back to a Feudel society.

  • RONALD L CONNER

    Hello:
    My comments concern the spending of another trillion in money that is going to the people who need it the least, the bigger businesses.
    The money should be put with someone like SBA, to fund and finance smalller companies, with a drastic reduction in paperwork required to apply for such funds.
    This would do two things!
    1. The proper directing of cash to the most affected portion of our economy, and commit it to spending on their businesses that generate new growth in employees and working capital for their services.
    2. This also cuts out the damnable of our society from loan sharking these people, and raping them for funds that it takes to operate with. Both any investors, and private loan groups are charging them as much as 30% for money they need. The mentality is they are high risk, and this is a rate they should be allowed to make off of someone anyway, so why not these people! A criminal mentality at work through out the US.
    3. It also stops the abuse of these companies by preditory large funded groups, that just use the little companies up then throw them away.
    Thanks for your time,
    Ron

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