Focus on Unemployment NOW!

In Krug’s Monday article he uses the debt v growth debacle as an entre to issue a clarion call for his strongest held belief – reducing unemployment.  He see this as the most pressing concern for our time and says the reason we are in this high unemployment situation is solely because policy makers have made an enormous mistake, they focused on debt reduction instead of trying to stimulate the economy.  This colossal error will now lead to years of negative ramifications as a permanent class of Americans become unemployable and won’t be able to contribute to the economy.
 
In his blog there is ANOTHER post about the debt v growth scenario and Krug gives a great succinct viewpoint on the current economic malaise – “demand problem not a structural problem, there is no risk of crowding out, there is no risk of inflation from aggressive monetary expansion, there are large negative effects from austerity”.  He also makes an interesting point in that he DOES NOT believe inequality is holding back recovery (interesting in the fact that as a left winger you would assume he would champion it, but clearly he believes the data does not show it).  Krug also sees the Excel error (that was one reason the debt v growth paper has been debunked) as perhaps a turning point to get people not to listen to economic hardliners – and he specifically calls out who these policy makers are: Olli Rehn (European policy official who has advocated more austerity), George Osborne (UK policy official who keeps UK on a economic hard line) and Paul Ryan.  In another post he gives a rousing defense of good ol’ fashioned macroeconomics – the kind that is taught in college intro classes.  While policy makers have been jumping on new-fangled theories and then act confused when things don’t pan out, Krug is amazed that macroeconomics takes the hit since classical macro, he argues, has predicted exactly what has happened throughout this crisis.

Moving away from debt v growth – Krug is shocked that some European policy makers are mystified why the economy has not recovered.  Krug is incredulous as he as explained over and over that when you cut government spending (austerity) in a poor economy of course things are not going to get better since there is no actor in the economy who has the money to spend to move things along.