Krugman on Obama's Recovery Plans

The Cassandras are becoming the majority party.

In his New York Times column this morning, Paul Krugman unloads on the Obama administration about both its stimulus effort and its effort to rescue the financial system. On the stimulus front

[e]mployment has already fallen more in this recession than in the 1981-82 slump, considered the worst since the Great Depression. As a result, Mr. Obama’s promise that his plan will create or save 3.5 million jobs by the end of 2010 looks underwhelming, to say the least. It’s a credible promise — his economists used solidly mainstream estimates of the impacts of tax and spending policies. But 3.5 million jobs almost two years from now isn’t enough in the face of an economy that has already lost 4.4 million jobs, and is losing 600,000 more each month.

Thus the stimulus plan is too little, too late. Meanwhile, he argues that the effort to rescue the banking system is equally inadequate

As I read it, this dismissal [of nationalization] — together with the continuing failure to aonnounce any broad plans for bank restructuring — means that the White House has decided to muddle through on the financial front, relying on economic recovery to rescue the banks rather than the other way around. And with the stimulus plan too small to deliver an economic recovery ... well, you get the picture.

Krugman, this years economics Nobel laureate, has been something of a voice in the wilderness for more than a year, beginning with his talk of a liquidity trap early last year.

My fear, like his, is that the scope of this crisis is growing in a way that escapes us. We are responding, but seemingly to last week's problem, or as Krugman put it today

O.K., that’s a warning, not a prediction. But economic policy is falling behind the curve, and there’s a real, growing danger that it will never catch up.