May 7, 2012
BOSTON — Forget "recession," forget "downturn." We're in a depression, Nobel-winning economist Paul Krugman says in his new book — and he thinks he knows how to fix it.
We may not recognize it, because we don't see the breadlines and dust bowls of the Dorothea Lange era. But with the bad times at 4 years and counting, and 4 million people out of work for more than a year …
"A recession is when you're going down. A depression is when you are down," Krugman said. "It's not as bad as the Great Depression — but that's hardly a recommendation."
He criticized President Barack Obama's approach to handling the problem. Rather than stimulus, the country backed into what Krugman called "anti-stimulus."
"You have unprecedented austerity. If we had continued to expand public sector employment at the same rate that it took place under George W. Bush … 1.3 million more people would be employed as school teachers, firefighters, policemen and so on," he said. "And that austerity is a major reason why we are not actually recovering from this depression."
Krugman's solution? Investment by the federal government.
"In 2009, there was a real question, what we should spend stimulus money on. Now it's just — let's restore those public services. Let's rehire those school teachers. It's actually very easy to come up with a quite substantial boost to the economy which we could do very quickly. We could be recovered from this thing faster than almost anybody imagines," he said.
The feds can borrow money cheaply — and it's not the time to focus on cutting debt: "When you're in a depression, when you're in this kind of condition, is a really bad time to do fiscal austerity." Once the economy has come back, he said, then you can look at shrinking the deficit.
But if we continue on the current path, he predicted recovery could take a good 5 to 7 years.
KRUGMAN ON THE FORUM NETWORK