Krugman: We Could Be At 7% Unemployment Right Now

Conservatives have long sought to condemn the Recovery Act by claiming it failed to prevent unemployment from going higher than 8% as the White House projected. This is silly because the White House projection was made in January 2009 [1], and unemployment lept to 8.3% in February 2009 [2] before the Recovery Act had a chance to be implemented.

As you can see, the economy was in even worse shape upon the President's inauguration than the White House economists realized. The baseline projection is what was off, not the embrace of Keynesian 101 economics.

And as Paul Krugman explained at the Take Back the American Dream conference today, we could have driven unemployment down below 8% if only we extended one aspect of the initial Recovery Act: send money to the states to prevent public worker layoffs.

"Just by filling the potholes," hiring idle construction workers and saving teaching jobs, said Krugman, we would be at 7% unemployment. We would not incur much more debt to do it, because interest rates are so low. It would not take much time to implement, as opposed to also needed heavy infrastructure projects, because all that's involved is putting the money into the state accounts.

Krugman wrote in his new book, "End This Depression Now," helping states reverse recent budget cuts would "create well over a million jobs directly and probably something like three million jobs once you take the indirect effect into account."

The issue of saving our public sector workforce is becoming one of the major flashpoints in the upcoming elections, which makes sense since it is one of clearest policy reversals that occurred after Republicans swiped the House in 2010.

In 2009, the Recovery Act pumped $140 billion into state coffers [3], which the Center for Budget and Policy Priorities concluded worked "as intended." [3] And in 2010, Congress passed the last bit of stimulus we've received, an additional $26 billion for the states. [4]

But since John Boehner has replaced Nancy Pelosi, the spigot is turned off. States and cities are on their own, despite having lost 628,000 government jobs in the last three-and-a-half years. [5]

And when President Obama tried to call attention to the fact that the private sector is adding jobs while the public sector is shedding them, Mitt Romney saw that as an opportunity to mock the idea of hiring teachers, police officers and firefighters. [6]

In other words, while Republicans try to blame the President for failing to get unemployment below 8%, Republicans are standing in the way of the easiest way to get unemployment below 8%.

Krugman is doing his part to shine a light on the simple things we can do to create more jobs. The job for the rest of us at the Take Back the American Dream conference is to mobilize the nation around those ideas, so we can smash the gridlock in November.