A few choice quotes from Paul Krugman’s column in the Times today:
… the truth is that the New Deal wasn’t as successful in the short run as it was in the long run. And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.
Too cautious? Really?
Well, yes, surprisingly. According to Krugman, America didn’t really recover from the Great Depression until the nation went into industrial high gear in order to fight the Second World War. In fact, a combination of tax increases by Hoover and the states, together with real cuts in both federal and local government spending (apart from the WPA and CCC), actually caused a recession from 1936 - 1938.
Krugman’s position is that things would have been different if Roosevelt had actually been as aggressive with government spending as he’s commonly believed to have been, citing (M.I.T. economics professor) E. Cary Brown for the proposition that massive federal spending failed “not because it does not work, but because it was not tried.”
The sub $200 billion total being bandied about now (qualified by the usual “over the next 10 years” nonsense), of which it looks like only $35 billion a year would go directly to creating jobs building infrastructure, seems like a small amount, proportionally to what has already been spent or committed to the financial sector, because it is — small. The Chinese government just announced a $586 billion stimulus plan of their own, aimed directly at job creation and preservation, through spending on infrastructure projects that far exceeds the percentage of it’s GDP than planned American spending would represent to our much larger GDP.
As I’ve said in other fora, all the bailouts in the world won’t help American banks and industry if consumers in the United States don’t have the money to spend on their goods and services. But before we get there, those consumers are going to need a bailout of their own: job security, good wages adjusted for inflastion, guaranteed health care and restoration of retirement savings.
Ironically, China’s focus on building infrastructure to provide employment is exactly what the incoming administration pointed to as a key part of it’s recovery plan. Unfortunately, there are many voices today calling for “caution”, and the numbers that have been floated so far leave me concerned that they may be having an effect. To that, I would give Krugman the last word:
The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.
