The Guy on the Side of the Ordinary Folk

It is funny to hold up an academic as "people's hero" but as far as I can tell, the one guy who really does care about the average worker is not the Obama "team" or leftist propaganda groups. It is Paul Krugman. This guy is amazingly right about a lot of things. Here's his take on the economy.

From the opening bit of his latest op-ed in the NY Times:

Mission Not Accomplished

Stocks are up. Ben Bernanke says that the recession is over. And I sense a growing willingness among movers and shakers to declare “Mission Accomplished” when it comes to fighting the slump. It’s time, I keep hearing, to shift our focus from economic stimulus to the budget deficit.

No, it isn’t. And the complacency now setting in over the state of the economy is both foolish and dangerous.

Yes, the Federal Reserve and the Obama administration have pulled us “back from the brink” — the title of a new paper by Christina Romer, who leads the Council of Economic Advisers. She argues convincingly that expansionary policy saved us from a possible replay of the Great Depression.

But while not having another depression is a good thing, all indications are that unless the government does much more than is currently planned to help the economy recover, the job market — a market in which there are currently six times as many people seeking work as there are jobs on offer — will remain terrible for years to come.

Indeed, the administration’s own economic projection — a projection that takes into account the extra jobs the administration says its policies will create — is that the unemployment rate, which was below 5 percent just two years ago, will average 9.8 percent in 2010, 8.6 percent in 2011, and 7.7 percent in 2012.

This should not be considered an acceptable outlook. For one thing, it implies an enormous amount of suffering over the next few years. Moreover, unemployment that remains that high, that long, will cast long shadows over America’s future.

...

Look, I know more stimulus is a hard sell politically. But it’s urgently needed. The question shouldn’t be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no.

All these "deficit hawks" who want to cut back on spending are the same folks who caused the FDR to cut spending in order to follow "sound money policy" and watched the economy lurch down in another bad recession.

Here's a bit from Jim Jubak of MSN Money:

Will US repeat mistakes of 1937?

The specter of 1937 hangs over the economy and the stock market.

That's the year when overconfidence that the Roosevelt administration had whipped the Great Depression and that it was time to balance the federal budget led to another deep recession that wiped out three years of growth and sent the economy reeling back to the Depression depths of 1934.

...

1937 was the year, students of the Great Depression know, that everyone from the president on down got so confident that the bad times were over that they tipped the country back from recovery to depression.

Unemployment, which had marched down from its Depression high of 25% to a low of 14.3% in 1937, climbed again, hitting 19% in 1938. Personal income dropped 15% from its 1937 peak. And manufacturing output fell 40% from its 1937 peak, all the way back to the levels of 1934.

In other words, 1937 was the year that the V-shaped recovery from the depths of the Depression turned into a W-shaped one. The economic growth of 1934 (17%), 1935 (11%), 1936 (14%) and 1937 (10%) that had succeeded the economic collapse of 1930-33 came to a grinding halt. In 1938, the U.S. economy actually returned to negative growth, shrinking 6.2%.

What happened? Buoyed by the economic numbers and a landslide in the 1936 election -- Franklin D. Roosevelt had defeated Republican Alf Landon of Kansas by an Electoral College vote of 523 to 8 -- the Roosevelt administration declared victory over the Great Depression.

The declaration was a bit premature. Yes, unemployment was down from the horrifying 25% levels of the worst of the Depression, but it was still horrendous at more than 14%. The economy had begun to grow again, but 1937's gross domestic product of $88 billion was still lower than it had been in 1930 ($97 billion).

The emergency seemed to be over, however, and many in the New Deal, including Roosevelt's Treasury secretary, Henry Morgenthau, were deeply uncomfortable with the idea of running what looked very much like a permanent budget deficit. The annual deficit had peaked at $5.9 billion (yes, I know how quaint these numbers are in the days of trillion-dollar deficits), but it was still a shockingly high $5.5 billion in 1936.

You have to do a bit of number crunching to realize exactly how high a $5.5 billion annual deficit seemed then. It represented 7.7% of GDP and a huge 110% of the federal government's total annual revenue.

As they say, history never repeats, but it sometimes rhymes. I sure hope we aren't seeing the Obama team giving in to pressure and trying out their ability to make rhymes.