Monday, November 10, 2008

Krugman: Figure out how much money the economy needs, then add 50 percent.

An interesting article, as always, from Paul Krugman in today's New York Times regarding FDR's public policies during the Great Depression. Krugman argues, that great as the New Deal was, it was ineffective as an economic stimulus because it was too timid(!). Right as he and the Democrats won a massive landslide in 1936 (in recognition of their early efforts), FDR "cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits."
The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.

The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.

In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.

There are going to be a lot of people talking about how we've got to cut spending, and how Obama's agenda needs to be scaled back, now that we're in a recession... these people need to be slapped down forcefully whenever they pop up.