Focusing on fixing the economy in the “long-run” is the wrong approach, according to Krugman. The way to recover the economy is to come up with short term solutions that fundamentally change the US economic model.
Living in the shadow of economic catastrophe, Krugman reassures that this economic downturn “doesn’t have to be happening.” The United States’ economic problem is the result of poor organization as opposed to the result of low production capacity. There is a solution to the United States’ economic problem now, and the United States should not have to “punish” themselves for economic difficulty. This is magnified by the fact that there is a strong desire to see economics as a “morality” play between “right and wrong.”
According to Krugman, the rhetoric of US economists is focusing on the wrong metaphor. Some conservative economists see the economy as a family who has fallen “on hard times” and the solution is to “tighten the belt.” However, for Keynesian economists, the reality is that to come out of the recession, the economy needs to spend and produce more
Conservatives want the US consumers to believe that it was the US government’s recklessness that caused the financial crisis because to admit otherwise would admit that the GOP has been on the wrong trajectory, with their support of deregulation of the banking industry. Prior to the 2007 crisis, banks overextended themselves.
No one predicted the economy would encounter a recession that couldn’t be controlled by The Fed or monetary policy. Economists dismissed the first term economic policies of Obama advisors as “schlock economics.”
The American Recovery and Reinvestment Act (at $787 billion) was too small to stimulate the economy Many economists warned Obama administration that the stimulus was too small before it was signed. The ratio of spending to GDP appears high because the GDP of the United States is currently low.
The inadequacy of the first stimulus, wrote off the possibility of an additional stimulus as unemployment continued to rise despite the efforts of the Obama administration. Washington, D.C. focused on debt and deficits.
Only when there is a boom in the economy and surpluses of jobs can inflation occur can there be inflation. Printing money during a depression can only help the economy by giving individuals an incentive to spend.
The European economy crashed with the crash of the United States economy, however, was significantly worse due to the lack of fiscal integration
Krugman has hope that the United States has the capacity to do the same in the 21st century, by taking the lessons for the 20th century depression to heart.
Krugman asserts that the United States does not need to be suffering as much as it is. The public would most likely be receptive to a new policy approach because it would boost the economy, and does not have implications for individual sectors