PROFESSOR KRUGMAN ON FISCAL POLICY DURING THE TEN YEARS AFTER THE LEHMAN BANKRUPTCY. On September 12, 2018, Paul Krugman reviewed the ten years after the Lehman bankruptcy in this column entitled “Botching the Great Recession”.
Krugman says that economic policies during that period were “botched”: “…unemployment stayed high for many years; we didn’t return to anything that felt remotely like full employment (leaving aside the question of whether we’re there even now) until late in Obama’s second term.”
The failure was in fiscal policy. “We needed fiscal expansion, some combination of spending and tax cuts.”
Krugman describes generally the villains of the failure to have a big enough fiscal stimulus–“some key Obama figures”, some “Very Serious People” and “Republicans”.
“…the Obama stimulus.. was too small and, even more important, faded out much too quickly.”
Krugman concludes that: “The end result was that policy moved quickly and fairly effectively to rescue banks, then turned its back on mass unemployment.”
Here’s another issue which gets left out in all of these discussions: the quality of the jobs at issue. Traditionally, you could just focus on employment percentage and assume all jobs were good. However, employers have increasingly found ways to avoid hiring full-time workers to avoid giving them benefits (Amazon’s employees famously collect food stamps because it keeps them in poverty), wages have not kept up with inflation, and health insurance has gotten more expensive. More people are freelancing or temporary and are not receiving pensions.
I think people need to re-visit their fundamental assumptions (e.g. pre-2008 when people just didn’t think housing prices could go down). It is not enough just to employ people. Union membership is down. Just having a job does not mean you are improving your lot in life at all.