and no, I am not even an ordinary economist, much less one with the stature of a Nobel laureate. Still, even a casual reading of Krugman's column this morning, entitled Failure to Rise should scare the living daylights out of anyone who reads it. Consider this: after writing about both the stimulus and the bailout, in the third to the last paragraph he offers
Over all, the effect was to kick the can down the road. And that’s not good enough. So far the Obama administration’s response to the economic crisis is all too reminiscent of Japan in the 1990s: a fiscal expansion large enough to avert the worst, but not enough to kick-start recovery; support for the banking system, but a reluctance to force banks to face up to their losses. It’s early days yet, but we’re falling behind the curve.
And then his very next sentence read
And I don’t know about you, but I’ve got a sick feeling in the pit of my stomach — a feeling that America just isn’t rising to the greatest economic challenge in 70 years.
Read his column. He has more to say. So do I.
Hopefully you have now read the entire column. If not, shame on you. How can we have a conversation without being on the same page, which is the insights of our favorite Nobel laureate?
After all, if you have not read the column, you will miss all his delicious dissecting of Republican objections to the stimulus, quite usable in exchanges with wingnut relatives who insist on emailing to you the latest Limbaugh and company talking points. He will remind you of the $2 trillion in Bush tax cuts and the $1 trillion (so far) on the Iraq debacle (and remember fellow Nobel Laureate Joe Stiglitz posits a figure at least twice that). He will give you a description of the Republican reaction to the stimulus that you will cherish, that it
has bordered on the deranged.
You will realize that he still holds out hope that when the details of Geithner's bailout are sketched out, maybe, JUST MAYBE, there will be something of value - and yet note what he writes:
Will those public-private partnerships end up being a covert way to bail out bankers at taxpayers’ expense? Or will the required "stress test" act as a back-door route to temporary bank nationalization (the solution favored by a growing number of economists, myself included)? Nobody knows.
Here's the problem. Obama talks about a shortfall in demand below capacity of $1 trillion over the next year. Krugman cites figures of $2.9 trillion over three years. A stimulus of 800 billion, with far too much in ineffective tax cuts (whose multiplier is relatively low), is simply insufficient to the task.
Yes, in theory Obama could come back for more when the current amount proves, as Krugman strongly suspects, insufficient to the task at hand. But here's the rub - by then the Republicans will use that as an ugly stick with which to beat up on the administration, and if people are still scared try to use that to regain power. In the meantime people will continue to lose jobs, albeit not quite as quickly as without the stimulus. It is not clear that housing prices will stabilize, that the so-called "toxic" assets will have been properly handled, that we will have functioning credit markets.
Hear's my fear - right now much of the rest of the world is waiting for us to make the kind of major commitment necessary to right the floundering American economy. Without that happening, the chances of the problems in the rest of the world remain doubtful, and that will feed back into our economy (we are all too interlinked) with effects that could wipe out whatever gains we attain from this limited bailout.
Psychologically we would all have been better off with a figure over the magic number of $1 trillion, with perhaps 1/4 or less than that as targeted tax cuts.
And we had to do efforts to stabilize housing prices, or else everything else may well be useless, given how much debt is leveraged on to the value of the financial instruments based on our residential housing stock - and remember, that leverage is now world-wide.
Krugman is a penetrating writer, as well as being a brilliant economist. Thus even if I have not already brought you to the level of fear I experienced in reading this column, which reinforced a lot of things I have read elsewhere and what limited understanding I might possess on my own, his last brief paragraph nailed it:
There’s still time to turn this around. But Mr. Obama has to be stronger looking forward. Otherwise, the verdict on this crisis might be that no, we can’t.
no, we can't - Be scared. BE VERY SCARED And hope to hell his worries are misplaced. Because if they are not, we are all royally $%^@&&*