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Let's get fiscal

Finally, there is someone really has a clearer picture about the current mess. Recent weeks have proved that so-called "Small Government, Complete free market" have failed miserably. Most finance people and western politicians have been brain washed with the 100% capitalism free market idea. It becomes a religious believe that government should not intervene private business practice. Today we waked up from this big mess and knowing that there is not such thing called absolute free market, pure capitalism just like pure communism only exist in Utopia . A relatively free market and restrained government intervention is the most ideal society we need.

As a long time Keynes believer, it is the time to cheer that "build more railroad and highway, governments hire more civil service employees, increase more funding for public services, etc." When government spend more people will earn more; people earn more and they will spend more.





Krugman: Let's get fiscal

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By Paul Krugman
Published: October 17, 2008
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The Dow is surging! No, it's plunging! No, it's surging! No, it's ... .
Never mind. While the manic-depressive stock market is dominating the headlines, the more important story is the grim news coming in about America's real economy. It's now clear that rescuing the banks is just the beginning: The nonfinancial economy is also in desperate need of help.
And to provide that help, we're going to have to put some prejudices aside. In the United States, it's politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the U.S. budget deficit should be put on hold.
Before I get there, let's talk about the economic situation.
Just this week, we learned that U.S. retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep recession levels, and the Philadelphia Fed's manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish - and long.



How nasty? The U.S. unemployment rate is already above 6 percent (and broader measures of underemployment are in double digits). It's now virtually certain that the unemployment rate will go above 7 percent, and quite possibly above 8 percent, making this the worst recession in a quarter-century.
And how long? It could be very long indeed.
Think about what happened in the last recession, which followed the bursting of the late-1990s technology bubble. On the surface, the policy response to that recession looks like a success story. Although there were widespread fears that the United States would experience a Japanese-style "lost decade," that didn't happen: The Federal Reserve was able to engineer a recovery from that recession by cutting interest rates.
But the truth is that we Americans were looking Japanese for quite a while: The Fed had a hard time getting traction. Despite repeated interest rate cuts, which eventually brought the federal funds rate down to just 1 percent, the unemployment rate just kept on rising; it was more than two years before the job picture started to improve. And when a convincing recovery finally did come, it was only because Alan Greenspan had managed to replace the technology bubble with a housing bubble.
Now the housing bubble has burst in turn, leaving the financial landscape strewn with wreckage. Even if the ongoing efforts to rescue the banking system and unfreeze the credit markets work - and while it's early days yet, the initial results have been disappointing - it's hard to see housing making a comeback any time soon. And if there's another bubble waiting to happen, it's not obvious. So the Fed will find it even harder to get traction this time.
In other words, there's not much Ben Bernanke can do for the economy. He can and should cut interest rates even more - but nobody expects this to do more than provide a slight economic boost.
On the other hand, there's a lot the U.S. government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren't forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.
And this is also a good time to engage in some serious infrastructure spending, which the U.S. badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: By the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn't needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil.
So let's get those projects rolling.
Will the next administration do what's needed to deal with the economic slump? Not if McCain pulls off an upset. What we need right now is more government spending - but when McCain was asked in one of the debates how he would deal with the economic crisis, he answered: "Well, the first thing we have to do is get spending under control."
If Barack Obama becomes president, he won't have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.
He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.



Krugman: Let's get fiscal - International Herald Tribune
 
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