Behind the Curve

By Scott Horton

Nobel Prize winning economist Paul Krugman has his knives out. This is the toughest and the most intuitively correct of all the attacks on Obama economic policy:

President Obama’s plan to stimulate the economy was “massive,” “giant,” “enormous.” So the American people were told, especially by TV news, during the run-up to the stimulus vote. Watching the news, you might have thought that the only question was whether the plan was too big, too ambitious. Yet many economists, myself included, actually argued that the plan was too small and too cautious. The latest data confirm those worries—and suggest that the Obama administration’s economic policies are already falling behind the curve.

The Republican leadership has failed to criticize the Obama plan in a consistent, intelligent fashion. But this doesn’t mean Obama economic policy is beyond criticism—far from it. Implicit in Krugman’s criticism is something fundamental: How can the Treasury presume to undertake a “fix” when we don’t really appreciate the full scope of the problems at institutions like AIG and Citibank? Since the middle of September, breathless advice on how to remedy the situation has come from a handful of barons on Wall Street. They may indeed be concerned about the country, but they have a notorious record of putting their personal and institutional interests first. The problems need to be exposed fully and thoroughly before any more billions are pumped into a “fix.” What doctor would stop the diagnostic process halfway and start with a cure that his “gut” tells him is right? It would be malpractice. And Krugman is right that the key shortcoming so far is a failure to sound out the bottom of the well. We’re wasting precious time.