Krugman - Mission Not Accomplished (NYT column)

[pampango]

http://www.nytimes.com/2009/10/02/opinion/02krugman.html

"Stocks are up. Ben Bernanke says that the recession is over. And I sense a growing willingness among movers and shakers to declare “Mission Accomplished” when it comes to fighting the slump. It’s time, I keep hearing, to shift our focus from economic stimulus to the budget deficit.

No, it isn’t. And the complacency now setting in over the state of the economy is both foolish and dangerous. Yes, the Federal Reserve and the Obama administration have pulled us “back from the brink” — the title of a new paper by Christina Romer, who leads the Council of Economic Advisers. She argues convincingly that expansionary policy saved us from a possible replay of the Great Depression."

"A new report from the International Monetary Fund shows that the kind of recession we’ve had, a recession caused by a financial crisis, often leads to long-term damage to a country’s growth prospects. “The path of output tends to be depressed substantially and persistently following banking crises.” ...this isn’t inevitable: “We find that a stronger short-term fiscal policy response” — by which they mean a temporary increase in government spending — “is significantly associated with smaller medium-term output losses.”"

"You see, spending money now means a stronger economy, both in the short run and in the long run. And a stronger economy means more revenues, which offset a large fraction of the upfront cost. Back-of-the-envelope calculations suggest that the offset falls short of 100 percent, so that fiscal stimulus isn’t a complete free lunch. But it costs far less than you’d think from listening to what passes for informed discussion."