Krugman correctly lays out the problem: We are facing the second Great Depression. Agreed again that simple monetary policy is not enough. Agreed also that a stimulus package is certainly needed; otherwise the domino effect of shrinking businesses and increasing unemployment, together with tight credit and deflation will prove disastrous.
The point I have made repeatedly is that a stimulus package, while necessary, must be combined with programs and policies that address root problems. Otherwise, after the stimulus package runs its course, we will again be in the same boat: A wasteful and inefficient health care system now out of cost control, an energy independence policy too long neglected with costs poised to re-escalate once Americans are back to work, a trade policy that has permitted massive imbalances in the global economy, and a banking system that remains fearful and frozen.
Krugman despairs that the stimulus plan will come too late and too little. Even if Congress acts quickly–which is unlikely–, projects need time to be properly planned and organized. We may not have that time.
Of course, Congress could do revenue sharing with states and localities, as Galbraith suggested; thus passing off the actual delineation and oversight of projects, while quickening their progress and enhancing the prospects for their success.
But, as I have said repeatedly, much more is needed. Attacking the symptoms of the disease is not enough. We must simultaneously address root causes.
I outline them again, without too much comment:
- Universal health care, setting fees and schedules. Putting such in place would remove an enormous monetary burden from millions of Americans. The actual cost of doing business would be improved. Consider the Canadian, the British, or the French systems, which are far more cost effective than the American. This is one investment that will actually save money.
- Crash programs in energy independence. Nothing should be off the table. Cheap oil is a reflection of the growing crisis. What happens when the crisis is passed? Expect energy prices to rise once again.
- A sensible trade policy. At the very least, we should insist that China allow its currency to float more freely. If we cannot even do that, there is no hope. Once spending starts again, will we just return to buying Asian? Will jobs continue to flow to emerging nations? At some point, we must address the current account deficit and the net trade imbalance.
- A national bank. If private banks continue to tighten credit–and in this environment it is natural that they will–, then we should create a national bank that will lead the way.