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FRIDAY, NOVEMBER 27, 2009
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 OPINION 
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Obama Must Spend Boldly— or It's Great Depression II

Only government can save us now: Krugman

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(Newser) – For decades economists believed that a second Great Depression was impossible; all the Fed had to do, they said, is print more money. But as Paul Krugman writes, monetary policy has failed; despite "supplying liquidity like an engine crew trying to put out a five-alarm fire," credit remains elusive and the economy is tanking. For the New York Times columnist, only fiscal policy—that is, massive government spending—can stave off a repeat of the 1930s.

Barack Obama said last week that we must "act swiftly and boldly" to avoid "a much deeper economic downturn that could lead to double-digit unemployment." But while America needs a Keynes-style spending blast, Congressional posturing might result in legislation that is delayed and watered-down. If that happens, writes Krugman, it'll be "only enough to slow the descent, not stop it."

Barack Obama, accompanied by his Treasury Secretary-designate Timothy Geithner, left, and others, announces his economic team, Monday, Nov. 24, 2008, during a news conference in Chicago.
Barack Obama, accompanied by his Treasury Secretary-designate Timothy Geithner, left, and others, announces his economic team, Monday, Nov. 24, 2008, during a news conference in Chicago.   (AP Photo/Charles Dharapak)
Treasury Secretary-designate Timothy Geithner listens as President-elect Barack Obama speaks during a news conference in Chicago, Monday, Nov. 24, 2008.
Treasury Secretary-designate Timothy Geithner listens as President-elect Barack Obama speaks during a news conference in Chicago, Monday, Nov. 24, 2008.   (AP Photo/Charles Dharapak)
Monetary policy has failed to end the financial crisis, writes Paul Krugman, and only a Keynesian fiscal stimulus can avert a meltdown.
Monetary policy has failed to end the financial crisis, writes Paul Krugman, and only a Keynesian fiscal stimulus can avert a meltdown.   (©emilykreed)
Federal Reserve Chairman Ben Bernanke speaks on housing and housing finance, Thursday, Dec. 4, 2008, at the Federal Reserve in Washington.
Federal Reserve Chairman Ben Bernanke speaks on housing and housing finance, Thursday, Dec. 4, 2008, at the Federal Reserve in Washington.   (AP Photo/Jose Luis Magana)
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The biggest problem facing the Obama plan will be the demand of many politicians for proof that the benefits of the proposed public spending justify its costs—a burden of proof never imposed on proposals for tax cuts. - Paul Krugman, New York Times columnist

What gets lost in such discussions is the key argument for economic stimulus—that a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle. -

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