Roll Call: Latest News on Capitol Hill, Congress, Politics and Elections
November 26, 2014

When Stagnant Growth is the New Normal

Paul Krugman: “There don’t seem to be any major economic crises underway right this moment, and policy makers in many places are patting themselves on the back. We’re doing worse than anyone could have imagined a few years ago, yet people seem increasingly to be accepting this miserable situation as the new normal.”

How did this happen?

“I’d argue that an important source of failure was what I’ve taken to calling the timidity trap — the consistent tendency of policy makers who have the right ideas in principle to go for half-measures in practice, and the way this timidity ends up backfiring, politically and even economically.”

Fiscal policy has been underwhelming: “The classic example is the Obama stimulus, which was obviously underpowered given the economy’s dire straits.”

And monetary policy has also fallen short: “From the start, monetary officials ruled out the kinds of monetary policies most likely to work … As a result, the policies they have followed have fallen short of hopes, and ended up leaving the impression that nothing much can be done.”

  • CJR

    I expect the next presidential election to be similar to the Reagan run.
    If a candidate runs on the “economic malaise” and promises to “restore America” by drastic increases in military spending to counter the Russian threat, then that candidate will likely win.
    And a massive increase in military spending would be exactly the Keynesian stimulus that the economy needs to surge forward.

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