What happened to the global economy and what we can do about it
with 94 comments
By Simon Johnson
The president should nominate Paul Krugman to replace Peter Orszag as director of the Office of Management and Budget (OMB). (Orszag resignation details are here.)
We have previously reviewed Krugman's outstanding qualifications for this (or any other top level) job (link to details). The main reason Krugman himself has been reluctant in the past relates to a potentially difficult Senate confirmation hearing "â?? for example, if Krugman had been put forward to replace Ben Bernanke.
But for the OMB position, the dynamic of a hearing would be terrific for the president's specific agenda and broader messages. Krugman, of course, is the leading advocate for continued (or increased) fiscal stimulus. This is exactly President Obama's message to the G20 this weekend.
Plus, when Republicans push back against Krugman on this issue, he will let them have it full blast on fiscal policy during the Bush administration. Krugman has, again and again, been an outspoken critic of the Bush era fiscal policy. He has precise chapter and verse on where the Bush team went off the deep fiscal edge.
Krugman also stands for responsible medium-term fiscal policy "â?? he wrote the original definitive work, after all, on balance of payments crises. But the point is not to engage in precipitate and panicky fiscal austerity (as announced in the UK today), but rather to put the overall debt onto a sustainable path. It is very hard to do that when the people claiming the represent "fiscal prudence"? are actually the ones who created this massive mess in the first place. Krugman can set the public record straight on this "â?? it would be great television and very good economics.
This is exactly what the debate on our current deficit and future debt path needs. The Obama administration lost the narrative on this point also (as well as on banking and much more). Paul Krugman can get them back on track.
Written by Simon Johnson
June 22, 2010 at 12:13 pm
Posted in Commentary
Tagged with Paul Krugman
When Obama was elected I think that Paul said something like that he could be much more influential in his actual position than in the council of economic advisors.
I think you would agree with me, if not publicly, that he sometimes overstates or oversimplifies his cases when he makes some points. This allows him to give a heavier counterweights to some points of view that are predominant. The problem, in the OMB, is that he would have to be much more quiet and keep the internal discipline. Do you think that would really be able to be more influential there?
citoyen
June 22, 2010 at 12:22 pm
More fiscal stimulus? Are you out of your mind? How would increasing our debt trajectory improve GDP? The US consumer is tapped out even though interest rates are historically low. Krugman, Summers, Geithner and Obama will always spew the bankers BS â?? but why would you?
Rick
June 22, 2010 at 12:24 pm
Government spending of 1 trillion dollars would increase GDP by the same amount. Thatâ??s not even factoring in a multiplier.
wiscsteve
June 22, 2010 at 3:33 pm
Yes it is. Thatâ??s factoring in a multiplier of one. Otherwise, with complete crowding out, there would be no effect on GDP, just a shift from private to government consumption or investment.
don
June 22, 2010 at 9:42 pm
Crowding out!!
What planet are you on?
The private sector is on a spending strike. Housholds because a large proportion of them have lost so much wealth and are overgeared while many of the rest are scared of a double dip, businesses because they have overcapacity for current demand â?? look at the construction starts and car sales compared to 3 to 5 years ago.
If it werenâ??t for stabilising the banking system (it would have been better to have prevented systemic risk through regulation) and stimulus you would now be in depression. Check out the trends in Eichengreen and Oâ??Rourkeâ??s article on Voxeu.
Explorer
June 22, 2010 at 10:31 pm
â??â?¦with complete crowding out,â?¦â?
IOW, in a different universe,â?¦.
Barry
June 23, 2010 at 9:24 am
Even if you donâ??t agree with Paul Krugman on his recommendations for policy, you canâ??t accuse him of â??spewing the backer BS.â? Thatâ??s just ridiculous.
renny
June 22, 2010 at 11:19 pm
oops, I meant â??spewing the bankers BS.â?
renny
June 22, 2010 at 11:20 pm
Iâ??ll back the â??spewing banker BSâ? comment.
Krugman got a Nobel Prize. So did Hayek. You might study up on Hayek. His contribution to economics was focused on business cycles and how government spending serves to extend the time of depression and the severity of wealth destruction (unless you work for the government?).
Any attempt at the start of depression to spend and tax serves to make matters worse, eventually, unconditionally.
tom
June 23, 2010 at 6:09 am
No, he isnâ??t out of his freaking mind. Are you?
Seriously (and I donâ??t mean this to be ad hominem), itâ??s woefully apparent that you have no clue with regards to GDP, deficit spending by the government (of the nation that has the advantage of minting the worldâ??s reserve currency) and the difference between deficit spending by our government and spending by consumers that drives them into deeper debt.
As far as Krugman â??spew the bankersâ? (which I read to mean in the context of Geithner that youâ??re saying Krugman is on their side), exactly which planet is it that you live on?
Read Full Article »