The rapidly approaching fifth anniversary of the Lehman Brothers bust is bringing with it reflections of how far we’ve come. Yet general agreement is it’s not far enough, especially in light of another disappointing jobs report for August.
Nobel laureate and political gadfly Paul Krugman wrote a particularly scathing piece in The New York Times on Thursday, calling President Barack Obama’s economic policies since the 2008 collapse a “horrifying failure.” Playing off the old adage, when you’ve lost Paul Krugman, you’ve lost middle America.
“Set aside the politics for a moment, and ask what the past five years would have looked like if the U.S. government had actually been able and willing to do what textbook macroeconomics says it should have done — namely, make a big enough push for job creation to offset the effects of the financial crunch and the housing bust, postponing fiscal austerity and tax increases until the private sector was ready to take up the slack,” Krugman breathlessly began.
His back-of-the-envelope calculation of what such a program would have looked like revealed a stimulus about three times as large as the actual stimulus, “would have been much more focused on spending rather than tax cuts.”
Would such a policy have worked? All the evidence of the past five years says yes, he argued.
“The Obama stimulus, inadequate as it was, stopped the economy’s plunge in 2009. Europe’s experiment in anti-stimulus—the harsh spending cuts imposed on debtor nations—didn’t produce the promised surge in private-sector confidence. Instead, it produced severe economic contraction, just as textbook economics predicted. Government spending on job creation would, indeed, have created jobs.”