Book Review: Paul Krugman’s ‘End This Depression Now!’

(Cross-posted at Winning Progressive)

Right now the disconnect between Washington’s political-media class and the American people is astounding. Somehow in the midst of this economic catastrophe, the conversation steered away from fiscal stimulus and job creation to deficits and spending cuts. Meanwhile, millions of unemployed and underemployed Americans continue struggling to make ends meet.

Along comes Nobel Prize-winning economist and New York Times columnist Paul Krugman with his new book “End This Depression Now!”. Since 2008, Krugman (and a few other courageous individuals like former Obama economic adviser Christina Romer and economist Joseph Stiglitz) has been a voice in the wilderness calling for bigger and bolder government intervention to stimulate job growth while political leaders on both sides of the Atlantic fail to meet the challenge of this economic crisis with timid half measures and awful austerity. In America, the Republican Party is ruled by anti-government hysteria and free-market fundamentalism.

Krugman is a disciple of 20th century British economist John Maynard Keynes, who advocated against austerity measures and for public spending to tackle unemployment during an economic downturn. Keynes’ magnum opus was “The General Theory of Employment, Interest and Money” and his ideas came to a successful realization during World War II when the U.S. government borrowed money and started massive wartime spending that eliminated unemployment and brought the economy roaring back.

WWII is what plowed America out of the Great Depression and shut up the deficit hawks of the time, the Hooverites who feared government intervention and put their faith in private industry to solve the Great Depression. No one wants another war, so Krugman often jokes that we need a fake alien invasion to rally the public behind more fiscal stimulus (although Krugman glaringly omits climate change and global warming as the very real threat that could be used to justify expansionary fiscal policy).

Krugman is critical of American and European leaders for failing to learn the lessons of the Great Depression. Of course Republican free market radicals like Alan Greenspan are hammered for deregulating Wall Street to the point where the bankers brought down the entire global economy. But also Ben Bernanke is singled out for not being forceful and creative enough at the Federal Reserve. And Krugman criticizes the American Recovery and Reinvestment Act of 2009 for not being big enough and not making a large dent in unemployment. He argues this made it harder to pass a second stimulus package because Republicans would wrongly argue that public spending doesn’t work. And President Obama is criticized for at times going along with the Republican narrative that deficits and spending cuts must be dealt with now, even though there is no evidence that approach works. In fact, spending cuts can actually prolong the recession and even potentially create a second recession.

But Krugman argues that there are simple solutions to these problems, and that if the right policies are put in place, unemployment could be significantly reduced in less than two years.

The first solution is a federal aid package to states and localities so they can start hiring back teachers, firefighters and other public employees. Krugman writes that with federal aid to reverse budget cuts, state and local governments could be spending $300 billion a year that would create more than a million direct jobs and possibly up to three million jobs when indirect effects are taken into account.

Upgrading the nation’s crumbling infrastructure is another area that could create millions of jobs. There are many delayed or canceled projects that could be restarted with fiscal stimulus — roads, bridges, rail, airports, water pipes, broadband cables and more. And of course if we are capable of still thinking big, there are visionary projects like clean energy, the smart grid and high-speed rail that could transform our inefficient passenger rail system into the best in the world (the Recovery Act committed $8 billion to high-speed rail, but more federal money is needed).

Other solutions include environmental regulations boosting the renewable energy sector and incentivizing energy efficiency upgrades; Bernanke’s Fed having “Rooseveltian resolve to do whatever is necessary” by being “aggressive and experimental”; fully addressing the housing crisis with robust debt relief for homeowners, “a program of mass refinancing”; and taking a tougher stance on China and other currency manipulators.

But what about the political will? It isn’t there right now, but can it be? Krugman devotes the last chapter to this subject. And he has some timely advice for President Obama as he enters a tough reelection fight:

“The experience of Obama’s first term suggests that not talking about jobs simply because you don’t think you can pass job-creation legislation doesn’t work even as a political strategy. On the other hand, hammering on the need for job creation can be good politics, and it can put enough pressure on the other side to bring about better policy too. Or to put it more simply, there is no reason not to tell the truth about this depression.”