Fixing the Great Recession

Robert Reich writes Why We're Falling Into a Double-Dip Recession. "The Labor Department reports this morning that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth. "

"So what’s the answer? In the short term, more stimulus – especially extended unemployment benefits and aid to state and local governments that are whacking schools and social services because they can’t run deficits. But the deficit crazies in the Senate, who can’t seem to differentiate between short-term stimulus (necessary) and long-term debt (bad) last week shot it down."

He's been saying the same thing for a while. Last Friday he wrote Why Deficit Hawks Are Killing the Recovery. "Consumer spending is 70 percent of the American economy, so if consumers can’t or won’t spend we’re back in the soup. Yet the government just reported that consumer spending stalled in April – the first month consumers didn’t up their spending since last September. Instead, consumers boosted their savings, probably because they’re worried about the slow pace of job growth (next Friday’s report will likely show gains, but the number will continue to be tiny compared to the overall ranks of the jobless), as well as a lackluster “recovery.” They’re also still carrying enormous debt burdens. One in four home owners is still underwater. And median wages are going nowhere."

Krugman of course agrees. This week he's been writing about the OECD report and why some set of economists (the ones the GOP listen to) just don't get it. Yesterday he wrote Rashomon In The OECD to explain why we're not Greece or Spain. "So what does one make of this? One possible answer is, just you wait — any day now there will be a Wile E. Coyote moment, the markets will realize that America is Greece, and all hell will break loose. The other answer is to note that all the crisis countries are in the eurozone, while the US, UK, and Japan aren’t — and to argue that having your own currency makes all the difference." He also tackled the myth that a liberal congress (which was when?) caused the housing bubble with Fannie and Freddie, Things Everyone In Chicago Knows (referring to University of Chicago economic theory).

Dean Baker in the Guardian wrote last month, Politicians ignore Keynes at their peril. "John Maynard Keynes explained the dynamics of an economy in a prolonged period of high unemployment more than 70 years ago in The General Theory. Unfortunately, it seems very few people in policymaking positions in the United States or Europe have heard of the book. Otherwise, they would be pushing economic policy in the exact opposite direction than it is currently heading."

Brad DeLong takes it further, A Missing Macroeconomic Playbook? "For "macroeconomics" did and does have a playbook that offered a systematic plan of attack to deal with fast-evolving circumstances. The playbook was first drafted back in 1825, during the bursting of Britain's canal bubble."