The Obama administration’s stimulus plan is working, but the deficit spending was way too small to have a significant, long-term impact on the U.S. economy, writes Nobel Prize winning economist Paul Krugman.
“The good news is that the American Recovery and Reinvestment Act, a.k.a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would,” writes Krugman in The New York Times.
“But that’s also the bad news — because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we’re looking at many years of high unemployment.”
Though the likelihood of long-term, high unemployment is acknowledged by policymakers in Washington D.C., it is not probable that they will spend another $1 trillion or so on a second stimulus any time soon. The political environment won’t allow it, as the urgency of the early days of the Obama administration has passed.
“The really bad news is that centrists in Congress aren’t able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation,” writes Krugman.
Though the U.S. faces a bout of bad employment news, the “free fall” of the economy has stopped, Krugman adds.
“The stimulus didn’t completely eliminate these effects, but it was enough to break the vicious circle of economic decline,” Krugman writes.
Not everyone agrees with the controversial Krugman, however.
The Associated Press is reporting that former business executive and former Massachusetts governor Mitt Romney is describing the stimulus as “a failure,” and says that the remaining parts of the plan need to be cancelled.
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