New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman argues, in so many words, that, indeed, the United States must go back, to get to the future.Take a look at Paul Krugman refuting George Will's advocacy of Shlaes' misinterpretation here:
Krugman's advice for President-elect Barack Obama? Think big. Contrary to selected, conservative arguments about President Franklin D. Roosevelt's New Deal, the reason the New Deal had limited, short-term success was the fact that FDR's economic policies were too cautious, he said.
The New Deal: new life
The New Deal's long-term success and achievements, including the structural changes to the U.S. economy (including Social Security and bank deposit insurance), have proved to be both durable and essential, most economists, including Krugman, agree.
Hence, President-elect Obama should think big from the get-go, Krugman says, and avoid the mistaken belief that 'government spending made the Great Depression worse,' and Obama should move forward with a large fiscal stimulus to put people back to work, for work that needs to be done in these United States.
Further, Krugman doesn't bring author Amity Shlaes up, but she's one who argues, incorrectly in the view of yours truly, that the federal government's intervention prolonged the Great Depression. Briefly, in Shlaes' interpretation, the downturn of the 1930s was a pull-back following the Roaring 20s that the market would have corrected, had the federal government not intervened.
Shlaes' take on the Great Depression is as flawed an analysis of economic policy as one will find. Had the New Deal not intervened, the Depression would have been longer. Further, the problem, as Krugman noted, with the early New Deal years was not that the government had intervened, but that government spending was not big enough.
When government spending did increase to large levels, the Depression ended, Krugman notes, and the proof of that -- the evidence that philosophically and empirically refutes Shlaes' absurd thesis -- is the increased U.S. Government spending for World War II. When government spending increased to a large amount at the start of and throughout World War II, the U.S. economy boomed, and expanded, and became more dynamic, and diverse, and sophisticated, with an enormous increase in the nation's productive capacity - - to the point where the United States economy became the strongest economy on the face of the earth.
All because of government spending, Krugman states, adding that he hopes President-elect Obama is listening.
Fiscal Policy / Economic Analysis: Likewise, yours truly hopes President-elect Obama is listening, as well.
Tuesday, November 18, 2008
Krugman to Obama: Think big
from Joseph Lazzaro at BloggingStocks: