Treading Lightly into a New 'New Deal'

Many are arguing for a new "New Deal" under President-Elect Obama. Economist Paul Krugman says there are many lessons -- good and bad -- Obama should learn from the first "New Deal" before taking the plunge.

"Barack Obama should learn from F.D.R.'s failures as well as from his achievements: the truth is that the New Deal wasn't as successful in the short run as it was in the long run. And the reason for F.D.R.'s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious."

"Progressives hope that the Obama administration, like the New Deal, will respond to the current economic and financial crisis by creating institutions, especially a universal health care system, that will change the shape of American society for generations to come."

"But the new administration should try not to emulate a less successful aspect of the New Deal: its inadequate response to the Great Depression itself."

Full Story: Franklin Delano Obama?



Krugman's New Deal

This guys sounds more socialist all the time despite Noble Prizes. It seems he has forgotten that "erring on the side of too much stimulus" would also mean extraordinary budget deficits, worse than now. We've already had a huge fiscal stimulus - it was called the Bush administration with monstrous spending. Obviously, Obama will shift spending priorities, but greater aggregate fiscal stimulus will result in even more ridiculous debt. Increased taxes on the wealthy won't do much to offset this either.

Perhaps what Obama should do is offset all of a large decrease in defense spending with infrastructure spending such as seed capital for the development of nationwide network of alternative fueling stations or construction of a high speed rail system. In this way, he could claim no new net spending and still have a job creation program domestically. He would also be best off leveraging the private sector.

One thing he absolutely should avoid is creating massive new permanent bureaucracies. Krugman loves the New Deal and its programs, but fails to mention how they are bankrupting the budget and have gone way off their original course. The new stimulus should be temporary, in my opinion.

Krugman Mixing Two Issues

I think Krugman is mixing two issues: temporary deficit spending to fight the current recession and long-term government programs to provide health insurance, build roads, etc.

I agree with Krugman that we need large-scale deficit spending to fight the recession, but I also agree with CP that this deficit spending should be temporary, only until the recession ends.

I think Krugman needs to reconsider his uncritical support for New-Deal-style programs in the long run. We certainly need more federal spending on infrastructure such as a better power grid and better rail transit, but we certainly do not need spending to build more roads and freeways.

When old-line liberals say they admire the New Deal's road building, they show that they are decades behind the times.

Charles Siegel

Michael Lewyn's picture

We cannot- yet we must

Contrarian planner puts his finger on the key problem facing Obama.

On the one hand, we must have deficits if we want to stimulate the economy.

On the other hand, we cannot have deficits continuing to spiral out of control because they already are out of control.

If only we'd ran surpluses in good times...

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