Op-Ed Columnist
Falling Into the Chasm
By PAUL KRUGMAN
October 24, 2010
The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task. When Mr. Obama took office, he inherited an economy in dire straits — more dire, it seems, than he or his top economic advisers realized. They knew that America was in the midst of a severe financial crisis. But they don’t seem to have taken on board the lesson of history, which is that major financial crises are normally followed by a protracted period of very high unemployment.
If you look back now at the economic forecast originally used to justify the Obama economic plan, what’s striking is that forecast’s optimism about the economy’s ability to heal itself. Even without their plan, Obama economists predicted, the unemployment rate would peak at 9 percent, then fall rapidly. Fiscal stimulus was needed only to mitigate the worst — as an “insurance package against catastrophic failure,” as Lawrence Summers, later the administration’s top economist, reportedly said in a memo to the president-elect.
To avoid this fate, America needed a much stronger program than what it actually got — a modest rise in federal spending that was barely enough to offset cutbacks at the state and local level. This isn’t 20-20 hindsight: the inadequacy of the stimulus was obvious from the beginning.
What we do know is that the inadequacy of the stimulus has been a political catastrophe. Yes, things are better than they would have been without the American Recovery and Reinvestment Act: the unemployment rate would probably be close to 12 percent right now if the administration hadn’t passed its plan.
But voters respond to facts, not counterfactuals, and the perception is that the administration’s policies have failed. The tragedy here is that if voters do turn on Democrats, they will in effect be voting to make things even worse.
Read the full article at:
http://www.nytimes.com/2010/10/25/opinion/25krugman.html?partner=rssnyt&emc=rss