From the Frontlines of Krugman's Army (Part 2)

     This is part 2 of a piece on "Krugman's Army" in particular a recent interesting economic debate that has broken out on some of the blogs-Krugman of course, but it started with Ezra Klein's piece "Could  This Time Have Been Different?" Since then Scott Sumner at Money Illusion. Matt Yglesias at Think Progress, another good one was Ryan Avent http://www.economist.com/blogs/freeexchange/2011/10/economic-crisis have weighed in.

      In part 1 I mentioned how Klein showed that the Obama Administration came in intending to be aggressive and not timid or afraid of political attacks-which many liberals think they didn't-but they also greatly underestimated the depth of the problem.

      http://diaryofarepublicanhater.blogspot.com/2011/10/from-frontlines-of-krugmans-army-part-1.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

      One thing that Carmen Reinhart does say is that both the Bush and Obama Administrations deserve credit for all the monetary and fiscal stimulus they did give.

     "The initial policy of monetary and fiscal stimulus really made a huge difference,” she says. “I would tattoo that on my forehead. The output decline we had was peanuts compared to the output decline we would otherwise have had in a crisis like this. That isn’t fully appreciated.”

     In that way, Reinhart says, this time really was different — at least from the Great Depression, when output shrank by 30 percent and a quarter of the workforce was unemployed. “If the choice was this or the ’30s,” she says, “I’d take this hands down.”

    But then that's to be expected. With 9 percent unemployment and millions of Americans out of work and very week GDP it's difficult to feel like giving anyone credit.

    Apparently though, whatever the criticism Bernanke may deserve, the FED was light years ahead of its response in 1929. But even if we have "only" The Great Recession" or "Lesser Depression" that still doesn't really help all those who are out of work. If you're out of work-as I have been-it doesn't really help for someone to point out that back in the 30s a lot more people were out of work. So what- you're still just as unemployed whether 2011 or 1933.

    The concern going forward is a Japan like future for the U.S. and Europe were the new normal is lower GDP and higher unemployment. What can be done about this?

     "What we’re in looks more like Japan in the ’90s than the United States in the ’30s. Reinhart doesn’t think that’s an accident; she thinks it’s a product of the initial successes. “The same policies that serve you well in limiting the output collapse do not serve you well in speeding the time it takes to get out,” she says.
By saving the banking system, you end up with banks that are quietly holding on to toxic assets in the hope that one day they’ll be worth something. By limiting the output gap, you keep the economy from getting so bad that truly radical solutions, such as wiping out hundreds of billions of dollars of housing debt, become thinkable. You limp along."

      There are many things that still could be done. Congress could-but won't at least the whole package-pass Obama's AJA. The Fed could pass QE3 or even raise it's inflation target a point to 3 percent. Evidently these things are not able to be done.

       Whatever the reason it doesn't much help those who continue to suffer whether the reasons are malign or benign. And that takes us to the Occupy Wall Street protests.