I attended a lunch gathering with economist and NY Times columnist Paul Krugman, who is speaking today in San Francisco about his new book. Paul Krugman will also be speaking at the Take Back The American Dream 2012 conference that takes place June 18-20 in Washington, DC. Please click through for details and registration information.
At today’s lunch gathering Krugman explained that he calls our current economic circumstances a “depression” rather than a “recession.” A recession is a temporary downturn. We have had a recession. A depression is an ongoing bad economy, with high unemployment, and no sign of how we will get out of it. Krugman says this is essentially the same kind of situation that John Maynard Keynes described in the 1930s: “a chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse.”
The 1930s depression ended after WWII forced the government into a mode of massive spending. This was a huge stimulus to the economy and got its “engine” started again. The also brought a modernization of our manufacturing infrastructure, and following the war the returning military forces were sent to school by the government under the GI Bill. The resulting burst of growth reduced the debt-to-GDP ratio, meaning that while the debt did not drop, the size of the economy grew enough to make the debt a much lower factor in the bigger picture.
Krugman says that it actually would be simple to end this economic slowdown, and the obstacle to doing this is not economic it is political. All we have to do is hire people, and those people will stop collecting from the “safety net,” will start spending again, and will start paying taxes again. As these people are paid, their spending will cause even more hiring. This “restarts the engine” of the economy. We can employ people to do badly-needed things like rebuild our infrastructure, as well as rehiring the teachers, police and other state & local public employees that have been laid off.
Asked if there is a downside to his prescription Krugman said that right now we are in a very special circumstance, with interest rates very, very low so there is really not much harm that this can do. The resulting growth will lower the impact of debt on the economy, and help to start paying it off.
The Great Recession is more than four years old—and counting. Yet, as Paul Krugman points out in this powerful volley, “Nations rich in resources, talent, and knowledge—all the ingredients for prosperity and a decent standard of living for all—remain in a state of intense pain.”
How bad have things gotten? How did we get stuck in what now can only be called a depression? And above all, how do we free ourselves? Krugman pursues these questions with his characteristic lucidity and insight. He has a powerful message for anyone who has suffered over these past four years—a quick, strong recovery is just one step away, if our leaders can find the “intellectual clarity and political will” to end this depression now.
Paul Krugman blogs here: The Conscience of a Liberal.
Krugman’s regular New York Times column is here.
Update: See Joshua Holland’s AlterNet interview with Paul Krugman: Paul Krugman: We Could End This Depression Right Now
Please consider attending the Take Back The American Dream 2012 conference that takes place June 18-20 in Washington, D.C.