Is anyone still reading Paul Krugman?  This Noble laureate seems to have flamed out faster than a one-hit-wonder rock band.  Krugman was right, as were most economists (including yours truly), when he applauded President Obama’ s “Stimulus Act.”  It was the right move to arrest an economy in a nose dive.  

However, the “Stimulus Act” failed to deliver on Obama’s promise to keep unemployment below 8 %.   Instead of “Stimulus” the president should have labeled the measure the “Stabilization” Act.  And it did just that. 

Stabilization was good but at what cost?   The “Stimulus Act” cost as much as the eight years of war in Iraq, about $900 billion.  And, while it did stabilize the economy, it did not deliver a robust recovery.  Unemployment has dropped from 10% to just over 8% but it has taken three years to do this.  Economic growth these last three years has been at an unimpressive 2-3% which is more in line with long term economic growth than with a recovery.  

In contrast President Reagan had to deal with the recession of the early 1980s when unemployment was over 10% and the economy was hamstrung by high rates to borrow.  Home mortgages were as high as 15%.  The recovery brought about by Reagan’s much disparaged “Supply Side Economics” brought the unemployment rate down to 6% by the end of 1983 and economic growth in 1983 and 1984 was about 10%. 

The main point is that recoveries should have growth rates above historic trends. Clearly the 2-3% growth now is at best a “modest” recovery and certainly questions the great cost to achieve it, an expenditure equal to the Iraq War and an increase in the National Debt of $5 trillion in three years. 

Krugman argues that the reason the “Stimulus Act” did not generate more action was that it was too small.  He vigorously urged a second, even more expensive, move.  The president got half a  loaf with additional Fed money to lengthen unemployment pay and for further aid to state and local governments.  But as far as Krugman was concerned it was not enough.

The modest recovery generated by Obama’s “Stimulus Act” should have pushed all economists back to the “drawing board.”  The tried and true remedy needs to be reviewed with any eye to what works now and what does not.  Unfortunately no one seems to be doing this.  Least of all Paul Krugman.