The Kroog Versus The After Action Report

Paul Krugman is getting mopey to the point of being emo (emo-conomist?) but I'm pretty much right there with him on this mess we're in.  It really is that grim.

How did things end up this way? We’ll never know whether the administration could have passed a bigger plan; we do know that it didn’t try.

He's got a point.  It is right to rail at the Republicans for opposing the stimulus at nearly every turn.  It is also right to rail at Obama for not having the political will to do what was necessary.  They got what stimulus they could, yes.  We should all be thanking them for that.  The sin was convincing themselves that the stimulus, as it was, was 100% adequate to tackle the problem  (this especially goes for the almost complete failure of the administration's mortgage relief program) and that they had slain the dragon.

Nothing could have been further from the truth.  Kroog continues:

Those concerns were what had me fairly frantic in early 2009: I was terribly afraid that the failure of an inadequate stimulus to bring unemployment down would end up being seen as a refutation of the whole idea of stimulus — which is exactly what happened. And by the way, the reason I was for temporary bank nationalization was that it would make it possible to recapitalize banks quickly, and get them lending, which would help make up for the weak stimulus; what happened instead, of course, was gradual recapitalization through profits, with banks not doing much lending along the way.

And here we are. From a strictly economic point of view, we could still fix this: a second big stimulus, plus much more aggressive Fed policy. But politically, we’re stuck: even if the Democrats hold the House in November, they won’t have the votes to do anything major.

I’d like to say something uplifting here; but right now I’m feeling pretty bleak.

Not going to happen.  If anything, we're about to take steps that will almost certainly require us to take even more drastic steps to fix it:  turning on Helicopter Ben's Printing Press at 110% speed.  Keep the phrase "gargantuan quantitative easing" in the back of your mind.

And yes, I'm talking about countering a deflationary death spiral with a hyper-inflationary orbital satellite cannon with a whole hell of a lot of zeroes after it.  Overdoing it on the austerity is going to cripple us.  Overdoing it on the stimulus is going to murder us.

As I said, inflation, major deflation, hyper-inflation.  We're smack in the middle of step two.