Paul Krugman warns that now is not the time for timidity in rescuing the economy.
Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence.
Now, it’s politically difficult for the Obama administration to enact a full-scale second stimulus. Still, he should be trying to push through as much aid to the economy as possible. And remember, Mr. Obama has the bully pulpit; it’s his job to persuade America to do what needs to be done.
Instead, however, Mr. Obama is lending his voice to those who say that we can’t create more jobs. And a report on Politico.com suggests that deficit reduction, not job creation, will be the centerpiece of his first State of the Union address. What happened?
It took me a while to puzzle this out. But the concerns Mr. Obama expressed become comprehensible if you suppose that he’s getting his views, directly or indirectly, from Wall Street.
And Wall Street, as Dr. Krugman notes, has a lousy record when it comes to making economic predictions. They are a reactive entity to the point of skittish — Iran goes on war games and oil prices go up two dollars a barrel — and they also have an agenda apart from Washington: if the government tries to create jobs, they’re the losers because they can’t profit, at least directly, from that kind of investment.
And history also has a lesson for us. In 1937 when the New Deal had been in place for less than four years, President Roosevelt listened to the Republicans and tried to pull back government spending. Stocks tumbled again, the economy had a relapse, and the vultures on the right who had goaded FDR into cutting back said, “Ha! The New Deal is a failure!” This time all the hand-wringing and pearl-clutching is coming from folks who didn’t say a word when President Bush took us from a surplus to the Great Recession.
Maybe it’s time they found out what it was like to be unemployed.