"Years of Tragic Waste" by Paul Krugman at the NY Times

Years of Tragic Waste

by Paul Krugman at the NY Times

http://www.nytimes.com/2013/09/06/opinion/krugman-years-of-tragic-waste.html

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Behind that financial waste lies an even more tragic waste of human potential. Before the financial crisis, 63 percent of adult Americans were employed; that number quickly plunged to less than 59 percent, and there it remains.

How did that happen? It wasn’t a mass outbreak of laziness, and right-wing claims that jobless Americans aren’t trying hard enough to find work because they’re living high on food stamps and unemployment benefits should be treated with the contempt they deserve. A bit of the decline in employment can be attributed to an aging population, but the rest reflects, as I said, an immense failure of economic policy.

Set aside the politics for a moment, and ask what the past five years would have looked like if the U.S. government had actually been able and willing to do what textbook macroeconomics says it should have done — namely, make a big enough push for job creation to offset the effects of the financial crunch and the housing bust, postponing fiscal austerity and tax increases until the private sector was ready to take up the slack. I’ve done a back-of-the-envelope calculation of what such a program would have entailed: It would have been about three times as big as the stimulus we actually got, and would have been much more focused on spending rather than tax cuts.

Would such a policy have worked? All the evidence of the past five years says yes. The Obama stimulus, inadequate as it was, stopped the economy’s plunge in 2009. Europe’s experiment in anti-stimulus — the harsh spending cuts imposed on debtor nations — didn’t produce the promised surge in private-sector confidence. Instead, it produced severe economic contraction, just as textbook economics predicted. Government spending on job creation would, indeed, have created jobs.




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