A cold day in Georgia in non-recovery summer
Well, not really, but that pretty much describes metaphorically how often Paul Krugman and I agree on things. But today, Krugman, wondering what Ben Bernanke of the Fed is going to say today in his big speech believes it will probably be more of the same. Albeit, we’re in a recovery, more slowly than we’d like and things will soon get better. Krugman isn’t buying it (and neither am I. If this is a recovery, I’d hate to see a recession). :
Unfortunately, that’s not true: this isn’t a recovery, in any sense that matters. And policy makers should be doing everything they can to change that fact.
Krugman also zeros in on the main problem that those policy makers should focus on:
The important question is whether growth is fast enough to bring down sky-high unemployment. We need about 2.5 percent growth just to keep unemployment from rising, and much faster growth to bring it significantly down. Yet growth is currently running somewhere between 1 and 2 percent, with a good chance that it will slow even further in the months ahead.
In fact, the GDP number for this past quarter is 1.6%. That’s revised sharply downward from the original 2.4% reported and touted by Democrats recently. That, as Krugman points out, isn’t a good number when you are looking at unemployment.
Krugman then chastises those who are pumping sunshine up our skirts when the real economic news doesn’t warrant it – like the President and VP. Bernanke and Geithner:
Why are people who know better sugar-coating economic reality? The answer, I’m sorry to say, is that it’s all about evading responsibility.
Ya think! Gee wish I’d been saying that for, oh, I don’t know, 18 months. For 12 of that it was Bush’s fault. For the past 6, it’s been all sunshine, roses and “recovery summer”. In effect, although not at all as blatantly, Krugman is validating John Boehner’s call to fire Obama’s economic team. Because it is clear that the policy makers haven’t a clue of how to fix this mess.
At this point in his op-ed, Krugman reverts to his old self – a hack. After talking about evading responsibility, he goes for the “obstructive Republicans” canard.
And when he finally gets around to saying what he’d do, as you might suppose, it is spend more money that we don’t have.
Addressing the Fed he says:
The Fed has a number of options. It can buy more long-term and private debt; it can push down long-term interest rates by announcing its intention to keep short-term rates low; it can raise its medium-term target for inflation, making it less attractive for businesses to simply sit on their cash. Nobody can be sure how well these measures would work, but it’s better to try something that might not work than to make excuses while workers suffer.
In layman’s terms he’s saying let inflation loose and buy more debt (borrow). He then covers his rear by saying “hey, it may not work, but it is better than doing nothing”.
I’m not at all sure that’s the case. In fact, my guess is if you let the inflation dragon out of the cage, you’ll never recapture it until it has ravaged the economy. All that money that’s been pumped into the economy has to be wrung out at some point. And there are no painless ways to do that of which I’m aware.
As for the administration his advice is as follows:
The administration has less freedom of action, since it can’t get legislation past the Republican blockade. But it still has options. It can revamp its deeply unsuccessful attempt to aid troubled homeowners. It can use Fannie Mae and Freddie Mac, the government-sponsored lenders, to engineer mortgage refinancing that puts money in the hands of American families — yes, Republicans will howl, but they’re doing that anyway. It can finally get serious about confronting China over its currency manipulation: how many times do the Chinese have to promise to change their policies, then renege, before the administration decides that it’s time to act?
Sure, let’s hand even more money to the two financial black holes – Freddie and Fanny – that have already sucked down half a trillion dollars we don’t have trying to shore up their loses and return them to solvency. Republicans have every reason to howl about Freddie and Fannie. If Krugman were anything but a hack, he’d have to admit that.
And if he thinks the Chinese – who are actually in a real recovery – are going to stomp on their economic progress to fix ours, he’s dreaming. Both proposals are absurd on their face. But then when it comes to actual solutions, I’ve come to expect that from him.
However, at least in the first part of his column, he and I were in pretty much perfect agreement. I need to go take a bath now.