Now what? If Spain still had its own currency, like the United States — or like Britain, which shares some of the same characteristics — it could have let that currency fall, making its industry competitive again. But with Spain on the euro, that option isn’t available. Instead, Spain must achieve “internal devaluation”: it must cut wages and prices until its costs are back in line with its neighbors. [. . .] What all this means for Spain is very poor economic prospects over the next few years. [. . .]
The good news about America is that we aren’t in that kind of trap: we still have our own currency, with all the flexibility that implies. By the way, so does Britain, whose deficits and debt are comparable to Spain’s, but which investors don’t see as a default risk.
The bad news about America is that a powerful political faction is trying to shackle the Federal Reserve, in effect removing the one big advantage we have over the suffering Spaniards. Republican attacks on the Fed — demands that it stop trying to promote economic recovery and focus instead on keeping the dollar strong and fighting the imaginary risks of inflation — amount to a demand that we voluntarily put ourselves in the Spanish prison
(Emphasis supplied.) I think Krugman is falling into the danger zone here with monetary policy and quantitative easing. He seems to be endorsing the idea that it is a magic bullet for our economic woes. Having read him on the subject, I am fairly confident that he does not think that but it seems to me he is overselling the potential of monetary policy solutions to our current economic mess. It is ironic that Krugman may be doing that for which he criticized the Obama Administration regarding the 2009 fiscal stimulus - overselling the policy. The difference here may be that in fact, I think the Obama Administration pretty much got the policy it wanted in 2009 on fiscal stimulus.
There has been some discussion of the incoherence and fingerpointing going on in the Obama Administration on economic policy. Mark Thoma, via Krugman and Brad DeLong, starts the discussion:
I understand that Congress may not have supported additional policy to try to stimulate employment, but the fight would have been worth it no matter the outcome, and with the administration actually leading rather than accepting defeat before the game has been played, the outcome may not have been as preordained as the administration seems to believe:
Obama could learn from Bush, by Richard Wolffe, Commentary, LA Times: The day before his party's shellacking in this month's elections, President Obama sat down with his economic team to examine the single most important issue for voters across the country: jobs.
But the question on the agenda was not how to accelerate the recovery or target job creation... The president had called the meeting to grapple with what he and his propeller-head economists have been debating for some time: the wonkish question of whether today's high unemployment rate is structural or cyclical. ...
Two years into this presidency, and many months into a sluggish recovery, may be a little late to try to agree on the root cause of today's high unemployment.
This lack of agreement on economic fundamentals is a primary factor behind one of this White House's most obvious failures: communications. As one senior Obama advisor told me the day after the disastrous midterms: "It was hard to find a single economic message when the economic team couldn't agree on a single economic policy." ...
However, a new economic team will not resolve the communications problems... In fact, the president has been frustrated by his communications strategy for most of the last year. ... Obama told me six months ago that poor communications had hampered his ability to execute his policies, and that was after several months of internal reviews.
[. . .]
(Emphasis supplied.) Thoma, DeLong and Krugman, economists all, focus on the notion that the Obama Administration seems to have bought into the "structural unemployment" nonsense. I actually was more struck by the statement from the President that "that poor communications had hampered his ability to execute his policies." Like Atrios, my question is what policies were hampered precisely? And how? Surely not the great HAMP program or other bank rescue policies. What precisely is the Obama Administration policy on job creation?
Sorry, this is not a messaging problem, this is a policy problem. The Obama Administration is failing on economic policy, in no small part due to the incompetent and corrupt Treasury Secretary Tim Geithner, who should be immediately fired.
Speaking for me only
