Anyone Have a Good Feeling About the Next Employment Report?

I certainly don't.

And once again I am reminded of the two rules for understanding the world:

1. Paul Krugman is right.
2. If you ever think Paul Krugman is wrong, refer to rule #1.

Paul Krugman:

What I was afraid of: Back in March, when I was lamenting the inadequate size of the Obama stimulus, I made this prediction:

Republicans are now firmly committed to the view that we should do nothing to respond to the economic crisis, except cut taxes — which they always want to do regardless of circumstances. If Mr. Obama comes back for a second round of stimulus, they’ll respond not by being helpful, but by claiming that his policies have failed.

And I laid out the following scenario:

So here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed. But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts.

It’s only June, but Republicans are already claiming that the Obama economic plan has failed. (Yes, that’s insane — hardly any of the money has flowed to the economy yet — but this was predictable.) Meanwhile, unemployment is already above 9 percent. And the green shoots are looking browner by the week, especially on the jobs front: new claims for unemployment insurance are stubbornly running at more than 600,000 a week, far above the 350,000 or so that would be consistent with a stable unemployment rate.

We really do need a bigger stimulus. But it’s going to be hard slogging.

I understand that last December we thought (wrongly) we had a one-quarter long and not a two-quarter long collapse in the economy and thus that the unemployment rate could be kept from rising above 8%. I understand the (wrong) judgment that Congress would increase and make more effective rather than diminish and make less effective whatever stimulus program bid Obama put on the table. But what I don't understand is the failure to understand that a too-big fiscal boost package could be neutralized by the Federal Reserve's raising interest rates while a too-small package could not be further boosted by the Federal Reserve's lowering interest rates, and hence that prudent policy last December involved at least planning for a fiscal boost package that would then look very large indeed.

Remember: World War II-style deficit spending was needed to get the unemployment rate down from 10% to 3%, suggesting to me at least that a truly effective fiscal boost capable of doing half that would have to be a quarter to a third of large. And we are not there: we are far from there:

Comments

[Dave Wrixon:]

Deficiet spending is not a problem provided accumulated debt is within reasonable limits and will not therefore precipitate a run on the currency. Frankly, anyone accepting dollar contracts/payments except to spend immediately in dollars is looney tunes. Further attempts to stimulate the US economy will end in disaster. This simply is not a problem that requires a quick monetary fix. The whole structure of the US economy has been corrupted and weakened by an endless series of quick monetary fixes. It is time to start solving some real problems. Oh, sorry, is that going to be too painful? Well, I have got news. The longer you put off the inevitable, the more it is going to hurt.

Jun 26 04:01 AM

[bklyn225:]

Let me understand this. You argue that the stimulus package is not vulnerable to criticism because 'hardly any of the money has flowed to the economy yet'; however, you still support a follow on stimulus bill. Maybe if you focused on economics and avoided the poo-pooing of 'republican' criticism, you would understand that the 1st stimulus was a poorly designed bill to prop up inefficient federal legacy programs. Give it a rest, Brad.

Jun 26 06:15 AM

[elcuervomej...:]

I will only make two small changes to this article:
" 1. Paul Krugman is never right.
2. If you ever think Paul Krugman is always wrong, refer to rule #1. "

thanks

Jun 26 08:49 AM

[Valley Boy:]

The current stimulus is structured to grow the government, not the economy. More people are catching on to this distinction. This is beginning to worry the liberal economists.

Jun 26 02:39 PM

[Gregman2:]

Rush Limbaugh used to say, "If you're unemployed it's because you're lazy." Well, we all know he's an idiot, anyway. But, the main reason why jobs are shrinking is...nobody's buying because no one has any money. If the pump were reprimed from the bottom-up, perhaps consumers might start to rebuy again. But thus far, all the borrowed stimulus dollars have gone towards re-liquoring-up der banksters.

Jun 26 07:32 PM

[Juno Moneta:]

Your plea for a second stimulus makes sense only if we believe Congress and the Obama administration will act responsibly, and not use it as yet another vehicle for looting the treasury.

Jun 26 10:40 PM

[firstThings...:]

Keep up the explanations Brad. Judging from the comments, you're right that some people can't tell the difference between the stimulus and the bailout, can't tell the difference between monetary and fiscal stimulus, and won't see past their conservative ideology even after all their policies disintegrated upon contact with reality.

Jun 27 12:10 AM

[ebworthen:]

LOL!

Entertaining.

We deficit spent in WWII because...we were at War!

Deficit spending won't save us.

We have privatized gains and socialized losses. In short, we have SOLD OUT and no amount of taxation and spending will make up for unethical behavior.

A good long war, let's say WWIII might work. If it's China we won't have to pay back our debts to them and maybe I'll get what I'm owed from Social Security; though I hear FDR laughing in his grave and Obama thinking about confiscating gold.

Yeah, green energy programs and debt spending and 12 TRILLION

Jun 27 11:44 AM

[ebworthen:]

...12 TRILLION in government debt is going to revive the economy.

Can I smoke that hookah you have there with you? The populace is leveraged to their eyeballs, they will be walking away from houses and credit card debt, and then the commercial real estate market will collapse.

Enjoy the Summer because darker clouds are on the horizon if you take off your Sunshine colored glasses and get sober.

Jun 27 11:47 AM

[the rabble:]

"Remember: World War II-style deficit spending was needed to get the unemployment rate down from 10% to 3%, suggesting to me at least that a truly effective fiscal boost capable of doing half that would have to be a quarter to a third of large."

True..but that deficit spending produced jobs that produced goods that were needed/consumed by the better part of a world that had been decimated (along with mfg capability) by said war. Along with domestic demand that had been diverted to a war effort for many years. There is no domestic demand even vaguely related to the type and extend of post WWII. Those conditions do not exist today. Your not going to create jobs as in the WWII scenerio because there is no demand as such, and global demand, as it is today is being meet by a mfg base that we in the USA are not effectively competing with.
I read an article by a fellow who said he that he did not think unemployement could (he might have said would) double. I think we're goning to see the whole economic landscape, analsis, political direction of both parties and the bulk of articles on websites such as this (as well as our national attention) start to shift and focus (obsessed with) jobs in this country as the unemployment rate does just that. Which actually has already begun...but then more of this and a complete, detailed anaylsis of all the origins and ramifications of free trade/N.F.T.A. (and the F. do not stand for free) and the demise of American mfg in my new book which will be out as soon as the first shipment arrives from........

Jul 18 12:29 PM