Krugman Says Financial Stimulus Was Success and Disaster.

fiscal stimulus

Krugman Says Financial Stimulus Was Success and Disaster.
We are now just beginning to pick ourselves up out of the dust vis a vis the Great Recession brought on by the recent housing crash.
– By Dan Weil (2014)

Millions homeless

Millions of people were left homeless, jobless and penniless by this trillion dollar(s) debacle. The White House was in a precarious position. Should it step in and try to engineer a recovery by bailing out the very financial institutions whose recklessness was considered to be the prime cause of this financial disaster in the first place.  Should it, conversely, just wait and hope that things would turn around with time and effort…the oft-heard appeal to “market forces?”

Obama’s stimulus package a mixed blessing?

 At this date – February 2014 – President Obama’s stimulus package is regarded as a mixed blessing by some. Although the ghastly unemployment figures that prevailed during the so-called Great Recession – over 20% in the hardest-hit regions of the United States and elsewhere – have decreased, many of the newly created – or restored – jobs are part time and low paying. Many former home owners are renters and hundreds of thousands of couples have split up because of the awful financial pressure brought on by the downturn – said to be second only to the Great Depression in magnitude.

 The estimated $831 billion fiscal stimulus package engineered by President Obama and congressional Democrats five years ago did much good, but was a political disaster, says Nobel laureate economist Paul Krugman.

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“And the consequences of that political disaster — the perception that stimulus failed — have haunted economic policy ever since,” he writes in The New York Times.

As for the benefits of the stimulus, “it helped end the economy’s plunge,” Krugman says. “It created or saved millions of jobs; it left behind an important legacy of public and private investment.”

Federal Reserve couldn’t save us from recession

The economy at the time faced a huge spending shortfall. And it was so hard hit by the financial crisis and the housing bust that the Federal Reserve couldn’t fight off the recession by itself by cutting short-term interest rates like it normally does, he explains.

So why do so many people view the stimulus as a failure? “Because the U.S. economy continued to perform poorly,” Krugman writes.

Housing bubble aftermath

“There’s no mystery about why: America was coping with the legacy of a giant housing bubble. . . . The stimulus was both too small and too short-lived to overcome that dire legacy,” he notes.

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