You have to give him pundit props: Krugman said from the start (this video is from February) that Obama's stimulus package was too small, and he was right. As expected, the unemployment claims went up to record-breaking levels this week. Via Bloomberg:
The unemployment rate rose to 9.8 percent, the highest since 1983, from 9.7 percent in August, the Labor Department said today in Washington. Payrolls fell by 263,000, following a revised 201,000 decline the prior month that was less than previously reported.
As someone who's sent out 250+ resumes in the past year and gotten one face-to-face interview and one phone call in return, I can tell you first-hand it's not looking good on the job front.
Krugman says if we don't do something about this, not only will the human costs will be high but our economic growth will be depressed for a long, long time:
Wait. It gets worse. A new report from the International Monetary Fund shows that the kind of recession we’ve had, a recession caused by a financial crisis, often leads to long-term damage to a country’s growth prospects. “The path of output tends to be depressed substantially and persistently following banking crises.”
The same report, however, suggests that this isn’t inevitable: “We find that a stronger short-term fiscal policy response” — by which they mean a temporary increase in government spending — “is significantly associated with smaller medium-term output losses.”
So we should be doing much more than we are to promote economic recovery, not just because it would reduce our current pain, but also because it would improve our long-run prospects.
But can we afford to do more — to provide more aid to beleaguered state governments and the unemployed, to spend more on infrastructure, to provide tax credits to employers who create jobs? Yes, we can.
The conventional wisdom is that trying to help the economy now produces short-term gain at the expense of long-term pain. But as I’ve just pointed out, from the point of view of the nation as a whole, that’s not at all how it works. The slump is doing long-term damage to our economy and society, and mitigating that slump will lead to a better future.
What is true is that spending more on recovery and reconstruction would worsen the government’s own fiscal position. But even there, conventional wisdom greatly overstates the case. The true fiscal costs of supporting the economy are surprisingly small.
You see, spending money now means a stronger economy, both in the short run and in the long run. And a stronger economy means more revenues, which offset a large fraction of the upfront cost. Back-of-the-envelope calculations suggest that the offset falls short of 100 percent, so that fiscal stimulus isn’t a complete free lunch. But it costs far less than you’d think from listening to what passes for informed discussion.
Look, I know more stimulus is a hard sell politically. But it’s urgently needed. The question shouldn’t be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no.
Robert Reich agrees, saying this is certainly not the time to worry about the deficit, and predicts if we do, the politics are going to get much uglier:
Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.
Yes, I know. Our government is already deep in debt. But let me tell you something: When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt.
[...] People who now obsess about government debt have it backwards. The problem isn’t the debt. The problem is just the opposite. It’s that at a time like this, when consumers and businesses and exports can’t do it, government has to spend more to get Americans back to work and recharge the economy. Then – after people are working and the economy is growing – we can pay down that debt.
But if government doesn’t spend more right now and get Americans back to work, we could be out of work for years. And the debt will be with us even longer. And politics could get much uglier.