Don’t believe the hype, ignore any rising GDP or employment figures, and whatever you do don’t call it a recovery—or we’re going to wind up right back where we started, argues Paul Krugman in the New York Times. There are indeed positive numbers coming, and with them calls for the Obama administration and Federal Reserve to ratchet back their efforts to prop up the economy. And if they do, it’ll be 1937 all over again.
In 1937, remember, Roosevelt and the Fed decided the Depression was over, so they cut spending and tightened monetary policy. Big mistake; the economy promptly fell back into recession. Yet now we have Ben Bernanke discussing an “exit strategy.” Congress still hasn’t passed a much-needed second stimulus, and will use the positive numbers to justify its inaction. But those numbers will be “statistical illusions,” warns Krugman. Fundamentally, the economy hasn’t found a growth engine to replace the housing and spending bubbles.