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Paul Krugman: Big Government Prevented a Second Depression

Posted on Aug 10, 2009

The Nobel Prize-winning economist writes that “around a million more Americans are working now than would have been employed without that [stimulus] plan. ... ” He also argues that “it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.”

Krugman’s analysis touches on a number of factors: the ability of the federal government to run deficits to pay federal workers and maintain the safety net (such as it is), the stimulus boost of the American Recovery and Reinvestment Act and the hands-on approach to the banking crisis, which, the columnist admits, “should have been handled better.”

(h/t: AmericaBlog)

New York Times:

In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.

The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.

Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall.

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By Marshall, August 14, 2009 at 11:22 am Link to this comment

I don’t know where Krugman gets his estimates but it’s hard to imagine a million extra jobs already having been generated from a stimulus program that’s spent less than 10% of its funds.  And even if true, we’re talking a scant .3% affect on the employment rate.  So, this arguable benefit for a ballooned deficit that will certainly start haunting as the ghost of stimulus past.  How was this a good thing?

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By rollzone, August 12, 2009 at 7:44 pm Link to this comment

hello. hey doc, this govt. stimulus fraud has disappeared. you cannot tell me where it has helped. you cannot tell me that our economy is the same agrarian based economy of the 1930s that was devastated by a dust-bowl. you cannot tell me we would have gone into a depression. no business was too big to fail. our regulations in place are corrupted with cronyism in office. printing money not worth the paper it is printed on is bringing massive inflation. nothing has helped, the administration only managed to steal more ‘other peoples’ monies’; and grow govt. i million more jobs lost may have been an opening to hire 2 million employees from the phoenix. lower taxes,and no spending on a persistent overseas war: would have been a better course.

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By Inherit The Wind, August 12, 2009 at 6:35 pm Link to this comment

All I see are lots of people who either didn’t READ the Krugman article, or flat-out didn’t understand it.

I don’t know if Krugman won a Pulitzer, but what he DID win was the Nobel Prize for Economics…which says he probably understands more about the economy than any of the posters here, whose understanding rivals “Joe The Plumber”‘s.

Krugman didn’t declare “victory”. He said that for all the screw-ups, failures and mismanagement, the stimulus STILL helped and kept us from crashing into a full-blown 1930’s depression.

He also, quite clearly, was cut OUT of the insiders advising the President on economics.  Clearly Larry Summers is challenged by the brilliance of effective scholars of the field like Krugman and Paul Volcker—who ALSO was cut out by Summers’ jealousy.

What Krugman is saying is things are still bad but would have been far worse and THAT is a positive sign in and of itself.

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By Zack, August 12, 2009 at 9:27 am Link to this comment
(Unregistered commenter)

Krugman conveniently ignores that big government CAUSED the financial crisis. The Federal Reserve flooded the market with cheap credit, the banking system is full of moral hazard since these companies knew that if they took big enough risks they’d get bailed out by the government and all of the FHA regulations encouraging sub-prime mortgages. Then Hank Paulson ginned up a “crisis” right before the election to get the TARP bailout passed, and the Federal Reserve takes $2 trillion onto its balance sheets - all in the name of protecting us. What BS!!!! Government colluded with the banks to rape the taxpayer/citizenry as much as possible. Greatest theft ever!

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By Night-Gaunt, August 11, 2009 at 10:46 am Link to this comment

I think Krugman is way off on this. Read this economists analysist of things and see of it is correct and we are on the brink of total failure because the real numbers that count are down very low.

See here; http// and see if Krugman is just being a cheerleader for a fake cause. He is too much in the mainstream of liars and fools who read the tea leaves instead of whether the water in the creek is rising. There is a flood coming and they aren’t doing anything to stop it. Pleasant words will not top it from happening. It isn’t over yet, just delayed.

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By mark, August 11, 2009 at 7:00 am Link to this comment
(Unregistered commenter)

I suspect the good professor has been co-opted by the current administration.

At the time it was proposed Dr. Krugman said the Obama stimulus was not enough; better than nothing but seriously not enough.

Third parties were saying at the time that the Obama administration had froze-out left of center economic critics like Krugman, Stiglitz and Baker.

In the meantime it appears that Dr. Krugman has attended at least one “off the record” dinner at the White House where he conferred with the POTUS and, one presumes, others in the Obama administration.

Now he tells us the Obama stimulus wasn’t enough, BUT it was better than nothing AND it averted a Great Depression II.

This past weekend Dr. Krugman came out in favor of a second term for Ben Bernanke.

“I think Bernanke has done a really good job,’’ Krugman said. “He failed to see this coming and he was behind the curve in early phases. But he’s been really very good in the sense that it’s really very hard to see how anyone could have done more to stem this crisis.’’

Talk about damning someone with faint praise!

As I understand it, Bernanke was in a position to speak out and act against the policies which lead to the economic meltdown and didn’t.

Can’t figure how this qualifies him for a second term.

Recently, in his blog, Krugman even took a stab at praising that reptile Larry Summers!

Anyhoo, you’ll know Krugman has gone absolutely soft on the current administration when he tells us the watered down, bastardized healthcare plan that is sure to come out of Washington is better than nothing, and in that sense, is a success.

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By tommy, August 11, 2009 at 7:00 am Link to this comment
(Unregistered commenter)

yeah, right. and fairies wear boots….

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By G.Anderson, August 10, 2009 at 10:28 pm Link to this comment

Usually, I can agree with Mr. Krugman, but not this time. Because I tend to think that Wall Street is a perfect reverse barometer for main street. When they are doing good, things get worse for us.

That after fleecing the public of about 200 billion dollars, paying millions in bonuses to their staff who caused this mess, and failing to really help people avoid the loss of their homes, we are now good to go forward? It’s just a delusion.

Get a grip Paul,commercial real estate is going south and theres another round of ARM resets going under at a rate of 50% with a larger pool of mortgages than the last one, not to mention the Chinese unwinding themselves from buying our debt.

Then there is the American people being squeezed, and taxed, and gutted from every direction. No we’re collapsing, soon we’ll have burned through the billions again, and it will be deja vu all over again.

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By PatrickHenry, August 10, 2009 at 5:17 pm Link to this comment
(Unregistered commenter)

Wonderful.  Everything Krugman has said in the recent past has turned out to be error-prone at best, an intentional lie meant to achieve a political end at worst.  Now that Krugman is pronouncing the final victory in the stimulus and “whew - Depression averted!”, look for things to get much worse in the not-too-distant future.

I would have more confidence in the economy if Krugman were suddenly to become the prophet of doom, he’s been so wrong about so much…but unfortunately I guess that mantle will continue to be worn by economists like Peter Schiff, who has been proven right about everything he’s said - in stark contrast to Leftist Cheerleader Krugman.

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By coloradokarl, August 10, 2009 at 4:54 pm Link to this comment

I like paul Krugman, To me he is just another tool in my box of political “experts”, the people I listen to in the journey to expand my knowledge and TRY to make better opinions of my own. Pulitzer Schmulitzer he is just another smart guy with an opinion (mostly his own?!?)Discourse breeds thought and thought helps create actions….

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By Marshall, August 10, 2009 at 3:48 pm Link to this comment

Obama was lambasted for inventing baseless “jobs saved” numbers attributed to a stimulus that had barely even kicked in, but we’re supposed to believe Krugman can do the same things based on the same data?  Krugman is simply an Obama cheerleader and become more of an ideologue than an economist.

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By Fat Freddy, August 10, 2009 at 2:58 pm Link to this comment

Krugman is so full of shit! Of all the things the government could have done, they picked the absolute worst. And we still have financial institutions which pose a possible “systemic risk”. And the government has yet to implement any regulation to prevent this from happening again. So guess what, it will happen again. Somebody needs to shove a telephone pole up Krugman’s ass.

Paul Krugman: Big Government Prevented created a Second Depression

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By garth, August 10, 2009 at 2:29 pm Link to this comment

Thom Hartmann is talking about how the big PHARMA and big insurance, big media, specifically, the Washington Posts mounted an attack on a single payer plan. 
I am for big government investment in the general well being of its citizenry, not an emptying of the vaults of the Treasury for these people, though.
We’re not back on track.  We’re in for more double-talk and just plain bul-shit.  Lately, I have been expecting it from Krugman.  He’s starting to sound like a real dupe.
Wait till the health insurance bills for 2010 come out.  They’ll hail the reform brought about by the Obama dream and get together for a photo op.
When the new rates come out, though, everyone, and I mean everyone, will be paying more.
Just when one gets used to being a slave, the master class gets a hair across their collective asses and make it more unreasonable. 
This time they’re relying on the opiate of the internet and advertisement.

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By grumpynyker, August 10, 2009 at 1:18 pm Link to this comment
(Unregistered commenter)

No, replenishing the banks’ losses from derivatives speculation was a mistake.  They should’ve been forced to enter bankruptcy reorganization or allowed to fail.  Implement a 2009 version of Glass-Steagall and break up these investment banks like the telephone companies were.  Make accountants from the GAO see where the TARP monies were wasted and arrest/imprison the thieves on Wall Street sans their ill-gotten loot.

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