Krugman’s Summary of Where We Have Been and Are

October 9, 2011, 3:36 pm

Was Failure Inevitable?

Ezra Klein has a generally reasonable analysis of the Obama administration’s failure to respond with sufficient force to the economic crisis. Broadly speaking, he’s saying that the eurovenn applied: an economically adequate response lay beyond the bounds of the politically feasible.

In general, I’m trying not to do too much looking back; the question is what to do now. Still, I guess this needs addressing.

There’s certainly a lot to Ezra’s thesis. Yet I think he lets Obama and company off the hook too much. A few specific points:

1. I think too much is being made of the fact that subsequent revisions have shown that the economy was in even worse shape in early 2009 than we knew at the time. There was already plenty of evidence that it was in terrible shape and needed a much bigger boost than the administration proposed. And as regular readers know, this isn’t 20-20 hindsight: I was frantic about this at the time.

2. The forecast that assumed rapid recovery even without stimulus has been a deep source of embarrassment, and remains inexplicable to me. We had lots of reason to believe that this was going to be a prolonged slump — not just Reinhart Rogoff, but also the evidence of the last two US business cycles. Again, I was warning about this at the time.

3. This in turn means that the focus on fast-acting policies was misplaced. Shovel-ready wasn’t as important as it was made out to be. And the stimulus would have been a lot closer to adequate if more of it had consisted of infrastructure spending rather than tax cuts.

4. Politically, the administration was wildly naive in believing that it could easily come back for more if the initial stimulus proved inadequate. Again, this isn’t hindsight; I was frantic about this too, right from the beginning. If they thought this likely — as they should have — they should have laid the legislative groundwork for a second round, through reconciliation if necessary, right at the start.

5. Even without that groundwork, my sense is that there was a window for additional action in the fall of 2009, and that the administration sheered off from even trying.

6. Relatedly, the insistence of the administration that the stimulus was just right, long after it was obvious that it had been too small, did a lot of political damage. Remember the “summer of recovery”?

7. The political response to the new jobs bill has been pretty good — which in turn strongly suggests that the “pivot” from jobs to deficit reduction in early 2010 was a big mistake. Maybe — probably — nothing could have passed; but the White House might have been able to make a better case by accusing Republicans of blocking job creation rather than adopting their rhetoric.

Now, Ezra may be right that none of this would have made much difference. But the White House was weak and confused in the face of a political and economic debacle, when it should have gone all out.

And you know what? It should still go all out. The chances of success are lower than they would have been if it had taken a strong position two years ago, but it ain’t over until it’s over.

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