Paul Krugman: Setting Their Hair on Fire:
Obama's jobs plan was "bigger and bolder than expected':
Setting Their Hair on Fire, by Paul Krugman, Commentary, NY Times: First things first: I was favorably surprised by the new Obama jobs plan, which is significantly bolder and better than I expected. It’s not nearly as bold as the plan I’d want in an ideal world. But if it actually became law, it would probably make a significant dent in unemployment. ...
Before I get to the Obama plan, let me talk about the other important economic speech of the week ... given by Charles Evans, the president of the Federal Reserve of Chicago. Mr. Evans said, forthrightly, what some of us have been hoping to hear from Fed officials for years now.
As Mr. Evans pointed out, the Fed, both as a matter of law and as a matter of social responsibility, should try to keep both inflation and unemployment low — and while inflation seems likely to stay near or below the Fed’s target of around 2 percent, unemployment remains extremely high.
So how should the Fed be reacting? Mr. Evans: “Imagine that inflation was running at 5 percent against our inflation objective of 2 percent. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn’t any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market.”
But the Fed’s hair is manifestly not on fire, nor do most politicians seem to see any urgency about the situation. ...
O.K., about the Obama plan: It calls for about $200 billion in new spending ... and $240 billion in tax cuts. That may sound like a lot, but it actually isn’t. ... And it’s unclear, in particular, how effective the tax cuts would be at boosting spending.
Still, the plan would be a lot better than nothing... As I said, it’s much bolder and better than I expected. President Obama’s hair may not be on fire, but it’s definitely smoking; clearly and gratifyingly, he does grasp how desperate the jobs situation is.
But his plan isn’t likely to become law, thanks to Republican opposition. And it’s worth noting just how much that opposition has hardened over time... Republicans are against tax cuts — at least if they benefit working Americans rather than rich people and corporations. And they’re against monetary policy, too. ...
So, at this point, leading Republicans are basically against anything that might help the unemployed. ...
The good news in all this is that by going bigger and bolder than expected, Mr. Obama may finally have set the stage for a political debate about job creation. For, in the end, nothing will be done until the American people demand action.
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