Tuesday, June 7, 2011

One Really, Really, Really Bad Call

Krugman on "The Pivot":
Christy Romer talks about the economic debate (pdf) in the fall of 2009:
Like the Federal Reserve, the Administration and Congress should have done more in the fall of 2009 and early 2010 to aid the recovery. I remember that fall of 2009 as a very frustrating one. It was very clear to me that the economy was still struggling, but the will to do more to help it had died.
There was a definite split among the economics team about whether we should push for more fiscal stimulus, or switch our focus to the deficit.
This matches what I was hearing. And it tells you that it wasn’t just the Republicans: a substantial faction within the administration was eager to “pivot” away from the jobs issue. Christy also tells us that the Fed shifted its focus from promoting expansion to exit around the same time.

All of this represented awesome folly. By fall 2009 it was obvious that the pessimists — those who warned that the aftermath of the financial crisis would be a prolonged period of high unemployment, not the V-shaped recession and recovery envisioned in the original stimulus plan — had been right. The case for doing more — and at least for demanding more action, so that the other party could at least be accused of obstructionism — was overwhelming.

Yet even within the administration, people were itching for a switch to deficit hawkery.

Future historians will look back at this, and marvel. Of course, it’s just part of the broader story of how bad economic ideas — the very ideas that were proved wrong by the crisis, and continue to be proved wrong by subsequent events — have come to dominate the discourse.
Obama ignored focusing on a real problem (unemployment) and instead used the administration's energy on a fake one (the deficit). The effects of long term unemployment are staggering at a human level, and it's unthinkable that the Administration sought to "switch their focus" away from this crisis.

It also means that if the Republicans chose a walking-talking cardboard cutout as their nominee, there's a decent shot that he gets elected president.

Heckuva Job.

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