Investing in America

Paul Krugman has more depressing news about the economy. He offers a prescription to start a recovery that would not survive John McCain's insistence on a spending freeze:

[T]here’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

[more ...]

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

A spending freeze would prolong the economic pain. No way, no McCain.

If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.

He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

Obama will hear from an even louder chorus of voters. It's time to invest in America.

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    I've been thinking about this (none / 0) (#1)
    by CaptainAmerica08 on Fri Oct 17, 2008 at 03:07:44 AM EST
    for weeks with respect to an Obama presidency. My heart says yes, but my head says no. I think the first year or two he should just forget about deficit spending and implement his health care plan, his green jobs/investment plan and he has to implement his middle class tax cuts. I don't know if all his tax hikes are a good idea right out the gate, but incrementally maybe? I think the toughest part will be controlling congress' purse. That worry may be unfounded though as everyone clearly understands we are in dire economic straits now.

    i read dr. krugman's column. (none / 0) (#2)
    by cpinva on Fri Oct 17, 2008 at 04:14:59 AM EST
    basically, he recommends a return to keynsian economics, the foundation of FDR's "New Deal" in the 30's. i'm not quite sure if he's advocating a revival of the Works Progress Administration (WPA), or some other method of infrastructure rehabilitation program, to put the unemployed back to work.

    certainly, the nation's infrastructure needs the work, no question about that. however, this didn't really do it in the 30's, it took wwII to pull us out of the depression.

    we already have two wars going on, that are bleeding us of billions and billions now. absent a draft (which took a huge chunk of those unemployed males out of the civilian workforce), i don't see this as providing the spark needed to jump-start the economy. not enough to offset the additional billions (trillions?) of national debt, and the millions of debt service.

    besides, who is going to lend us the cash?

    The Green Economy requires a new (5.00 / 2) (#4)
    by Fabian on Fri Oct 17, 2008 at 05:59:56 AM EST

    Not more roads for cars and freight, but more mass transit, bike lanes, freight rail and commuter rail.

    It needs a complete, long term revision of the power grids.  Renewable energy sources require a flexible power supply model to supply power when solar and wind sources drop off.  A long term model would also have demand controls in place - some voluntary programs are already in place.  

    It shouldn't be just "roads and bridges" but roads and bridges that encourage and support energy conservation.  We have maybe fifty years before aptly named Fossil Fuel economy becomes extinct.  Any nation who relies on fossil fuels to the bitter end is likely to go the way of the dinosaurs.


    Deficit spending did pull us out of the depression (none / 0) (#9)
    by Manuel on Fri Oct 17, 2008 at 09:38:36 AM EST
    WWII did require a massive amount of deficit spending.  While higher than in recent years, our debt to gdp ratio is still way off historical heights.  We need to invest in the right things.

    WW II may not have helped economy (none / 0) (#11)
    by wurman on Fri Oct 17, 2008 at 10:43:10 AM EST
    There are substantial arguments indicating that the US economy was already recovered (recovering) before the US entered the war.  Apparently, Lend Lease & wartime factory orders from Europe had led to some growth as early as 1940.

    And there is very little data that indicates WW II did much to improve the US economy from 1942 to 1945.

    See Marginal Revolution, here:


    what is the bottom line? (none / 0) (#3)
    by Wile ECoyote on Fri Oct 17, 2008 at 05:04:28 AM EST
    How long should the unemployed get benefits?  As a union guy who could be facing it soon, and as a taxpayer who pays for it. Thirteen weeks sounds good to me.

    depends on how much is invested (none / 0) (#5)
    by Jlvngstn on Fri Oct 17, 2008 at 08:56:46 AM EST
    in job creation.  A 350 bn commitment treated as an emergency bill could get the economy moving in 3 months, creating jobs in 6.  I think 26 weeks would be fair based on the amount of anticipated layoffs and existing unemployment level.  It takes on average 6-9 months to find a comparable paying position (a bit longer in a recession).  

    Knee jerk (none / 0) (#6)
    by coast on Fri Oct 17, 2008 at 09:00:08 AM EST
    Knee-jerk is passing a $700 billion bill in less than two weeks. Krugman may have won his nobel prize, but he is off his rocker on this one. The deficit is not something to ignore.  When is a good time to look at a deficit that many estimate will reach close to $1 trillion?

    The deficit is important (none / 0) (#10)
    by Steve M on Fri Oct 17, 2008 at 09:48:43 AM EST
    but the only way to balance it is through deep spending cuts (not only inadvisable in a recession, but what would you really cut?) or through a major increase in revenue.

    The quickest way to make revenues go up is to raise taxes, but unless it's going to be a really big tax increase, there's simply not going to be enough revenue because of the economic downturn.  There's not enough productive activity to tax.

    So paradoxically, the best way to make revenues go up by enough to balance the budget is to do whatever it takes to get out of the recession as soon as possible.  Once the economy recovers, the revenues will be there to tax.


    Calculated Risk (none / 0) (#7)
    by Coral on Fri Oct 17, 2008 at 09:10:01 AM EST
    Reminds us that:

    At the start of the Depression, President Hoover kept trying to balance the budget - by cutting spending and raising the top marginal taxes from 25% to 63% - while the economy kept getting worse. It's unlikely that balancing the budget will be a priority in 2009.

    Hoover's policy arguably made the Depression much, much worse.

    When was the last time the gov got itself (none / 0) (#8)
    by Exeter on Fri Oct 17, 2008 at 09:34:26 AM EST
    out of a recession through a spending freeze?

    There are three problems here. (none / 0) (#12)
    by wurman on Fri Oct 17, 2008 at 11:26:00 AM EST
    The original source of our national economic debacle is very likely "off-the-books" spending on the wars in Iraq & Afghanistan.

    Parallel with, and probably related to the phony war funding is a recession that the Bu$h admin. has been attempting to "hide" & ignore by having the Labor Dept. manipulate data.  The job losses & unemployment & actual inflation rate (adding food & fuel to the CPI) have indicated a downturn in the economy since the 1st quarter.  However, the "inflated" spending on weaponry, fuel, & food by the Dept. of Defense bloats the Gross Domestic Product & creates a bogus economic stimulus.

    Finally, the international economic disaster caused by the collapse of the US financial sector, probably generated from criminal actions by bankers & speculative gambles by pseudo-bankers, has crippled or destroyed the credit system.

    Bu$h xliii, Paulson, & Bernanke intend to deal only with the financial & credit meltdown(s).

    And that's all they intend to do.

    thanks for the validation (none / 0) (#13)
    by Jlvngstn on Fri Oct 17, 2008 at 12:55:08 PM EST
    Mr. Krugman

    Do not accept any deal (5.00 / 1) (#16)
    by Jlvngstn on Tue Sep 23, 2008 at 08:56:46 AM EST

    without a commitment to infrastructure spending.  Either bill as they stand do not address foreclosures next year or the year after.  They do not address the upcoming spike in unemployment which will stall a sputtering economy and in 6 months to 9 months you will have a brand new crop of foreclosures due to lack of work.  If you try to address it under the next administration months will go by before any investments can be voted on let alone implemented.  
    When HOLC was created we had 25% unemployment and nearly half of all mortgages in crisis.  We have 6% unemployment and 4% of mortgages in crisis.

    Why on earth would we bail out banks in a similar fashion when the numbers are so decidedly apart? It is an embarassment really.

    Historically speaking we have had one jobless recovery from a recession. Unless we want a protracted recession (18 months) either plan is a mistake.

    This is a bank bailout not a market bailout and the market is going to go through another major correction in 60 days due to the stagnation of the economy, bailout or not.

    This price tag is also bs.  We are not looking at 700 Billion, we are looking at 2x that, nearly 1.4 trillion.  We have the numbers arse-backwards.

    We should be spending 350 Billion on infrastructure, 300 Billion on alternative energy, 200 billion on school construction and 200 billion on a bailout.

    The investments in infrastructure, alt energy and construction will pump cash back into the banking system, into employment and into state gov'ts. We also will recoup some of the money via taxes on wages, personal and corporate.  In the bailout, what do we recoup?  

    We can put a band aid on this and exploit it politically or we can actually get something out of our debt unlike useless, worthless paper.

    Also, I saw today that OBama is running an ad about offshoring corp to avoid taxes as I mentioned here 1 year ago and 4 weeks ago.  

    I was gonna say... (none / 0) (#14)
    by kdog on Fri Oct 17, 2008 at 06:17:00 PM EST
    has Krugman been reading my main man J on TL?..:)

    and then this today (none / 0) (#15)
    by Jlvngstn on Fri Oct 17, 2008 at 09:52:14 PM EST
    "Aggressive job creation is likely to be vital to any effective recovery effort, just as it was in the 1930s. In a concise report issued last Friday, the Center for Economic and Policy Research recommended a "coordinated fiscal stimulus...on the order of $300 billion to $400 billion (2.0-2.7 percent of GDP)," which is "essential for counteracting the sharp falloff in consumption." This money would be spent on "aiding state and local governments, extending unemployment benefits, tax rebates to low income individuals, accelerating infrastructure spending and support for energy conserving retrofits of homes and businesses."

    lol (none / 0) (#16)
    by Jlvngstn on Fri Oct 17, 2008 at 09:55:36 PM EST
    he has socialist tendencies just like me or he read my blatherings and said wow, that moron has is on to something.....