What Obama must do
Paul Krugman is an economist and writer whose name seems to pop up frequently, often in some pretty surprising places. In January of 2009, for example, Rolling Stone published a piece of his called “What Obama Must Do: A Letter to the New President.” Never before, they said, had one of their writers used “I gotta fly to Stockholm and accept the Nobel Prize” as an excuse for missing a deadline.
“Like FDR three-quarters of a century ago,” Krugman begins, “you’re taking charge at a moment when all the old certainties have vanished, all the conventional wisdom been proved wrong… Many presidents have to deal with crises, but very few have been forced to deal from Day One with a crisis on the scale America now faces. So, what should you do?” From there, Krugman goes on to tackle the question in accessible and compelling terms. Even I learned a thing or two from reading this piece, and I’m no economist.
Krugman says the economic crisis is defined by “a yawning job gap” – he projects an unemployment rate of more than 9% by late 2009, saying that the U.S. could wind up “10 million or more jobs short of where we should be” by that time. At that rate, as many as 10 million middle-class Americans would be pushed into poverty; health care would suffer as many of the Americans losing their jobs also lost their health insurance; and state and local governments, who get a lot of their income from the homes that millions more Americans would lose, would have to cut back on even the most essential services.
To make matters worse for Obama, the Federal Reserve – “a more or less independent institution, run by technocrats and deliberately designed to be independent of whoever happens to occupy the White House” – doesn’t have the power it once had to turn things around. In the 1980s, for example, the Federal Reserve turned a slump into a boom in a matter of months by printing up money and using it to buy up government debt, driving interest rates down. Mortgage and business borrowing rates dropped in kind, and people started spending again. This was a celebrated victory for the Reagan administration, even though Reagan himself supposedly had “absolutely nothing” to do with it.
Unfortunately, that system doesn’t work in this economy. The government interest rates are already at rock bottom, but the business interest rates are on the rise. Even if more people could borrow there would be little incentive to spend, especially on the big ticket items that fuel an economic recovery. “There’s no realistic prospect,” Krugman says, “that the Fed can pull the economy out of its nose dive.”
So it all comes down to the president. Krugman cites FDR once again, stating that Obama should “take care to emulate his successes, but avoid repeating his mistakes.” Using taxpayer money to buy up stock in the banks is good, and demanding that the banks use it to serve the public good is better. The Bush administration did the former without the latter, but Obama doesn’t have to follow suit. He’ll also have to make a bold investment in job creation, something that FDR was supposedly too cautious to do on a large enough scale. Tax cuts aren’t a solution, but they can help if they go primarily to lower- and middle-class Americans, “both because that’s the fair thing to do, and because they’re more likely to spend their windfall than the affluent.”
Beyond managing the crisis, Krugman says Obama needs to invest in building a more just and secure society. It was FDR who created social insurance programs like Social Security on the one hand, and oversaw the creation of a much more equal economy and a strong middle-class society on the other. In Obama’s case, Krugman says, the biggest priority after rescuing the economy should be “to give us, finally, what every other advanced nation already has: guaranteed health care for all our citizens.” It can’t be done overnight, but it’s a must on Krugman’s list, and one that “will permanently change America for the better.”
In fact, here’s an interesting passage: “Back in 1993, when the Clintons tried and failed to create a universal health care system, Republican strategists… urged their party to oppose any reform on political grounds; they argued that a successful health care program, by conveying the message that government can actually serve the public interest, would fundamentally shift American politics in a progressive direction. They were right – and the same considerations that made conservatives so opposed to health care reform should make you determined to make it happen.”
There are many more issues to tackle, of course, and Krugman touches on some while passing on the rest. The only notable exception is a call for a full accounting of the Bush administration’s systemic corruption, which Krugman raises as a citizen. The economy is still the heart of the matter for Krugman, and it’s the most immediate challenge that lies ahead.
A lot can happen in a few short months. Has Obama done what Krugman said he must do? More on that to come.
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