Krugman's Simple Solution

Nobel Prize winning economist and bestselling author, Paul Krugman has the answer to our economic woes.  In his new book: “END THIS DEPRESSION, NOW” by W.W. Norton & Company, Krugman lays out his simplistic approach to pulling the country out of its economic slump; an approach so simple that it will no doubt be scoffed at by the Washington elite.

Instead of ruminating about all the past foibles that got us in this mess Krugman focuses on a solution to get us out.

First of all, Krugman believes that we must come to the realization that we are in a depression.  Not a 1930’s “Great Depression;” but a depression none the less. As John Maynard Keynes described in the 1930’s; “a chronic condition of subnormal activity for a considerable period without any marked tendency towards recovery or complete collapse.”  He notes that we rebounded from that 1930’s depression as a result of massive government spending on WWII.  And while we are not facing WWII today the principles of recovery remain the same.  The government needs to pour money into the economy during a depression…not spend less.

Krugman believes that in a time of depression the government’s focus should be on job creation not deficit reduction.  He points out that while the economy has generated positive job growth for 28 straight months the growth is barely enough to keep up with the increase in population.  He believes that the government needs to do more to push job growth to levels that will gin up the economy.  Krugman argues that the austerity measures that are taking place today at the local and state levels are only adding to the problem.  The cutting of state and local government jobs is killing any chance of recovery.  His solution focuses on creating jobs at the state and local levels.

Krugman recommends that the federal government borrow $300 billion and provide it to state and local governments to rehire the teachers, police officers and firefighters that were cut during the austerity movement.  Use the remaining funds to fix the pot holes and other infrastructure maladies that we all know need attention.  He argues that the federal government can borrow this money for next to nothing and the increase in tax revenues and the infusion of capital into the economy will more than justify the increase to the debt and deficit.  He believes that this simple step alone will take the country a long way toward economic recovery.

Krugman understands that deficit hawks will jump on any increase in borrowing and he understands the need to tackle the country’s long term debt and deficit problems.  But he argues that now is not the time.  Krugman states that once the economy is running at a level where the Federal Reserve wants to increase interest rates; only then should we begin to implement spending cuts and deficit reduction.

Krugman states that our history has provided us with the path to economic recovery.  The only question is whether we have the political will to follow that path.

Krugman offers a reasonable solution that is far less draconian than slashing jobs and cutting services for the poor and the middle class.  Will Krugman’s plan work?  We have no idea.  But it certainly makes more sense than anything else we have heard coming out of Washington.

Paul Krugman’s “END THIS DEPRESSION, NOW”…a must read for every politician.