In the US, the News May Be Good, but Problems Remain

Steve Pearlstein, the columnist at The Washington Post, is a good guy. That’s why an article he recently posted online fills me with such despair.

“There are some on the left who also cling to the view that the economy is stuck in a depression — lest it undermine their critique about the woeful inadequacy of fiscal stimulus and the desperate need for more,” Mr. Pearlstein wrote on March 4.

He continued: “The choice we are presented between more stimulus and more budget-cutting is a false one. At this point in the recovery, the right policy is to cut and invest, while having the patience and humility to allow the economy to continue putting itself back into balance.”

What Mr. Pearlstein says is that there are a lot of indications that the economy is getting stronger, which is true (although not everything is rosy). So, he says, no more stimulus — in fact, let’s have more cuts in state and local spending to get things in line with long-run revenues. Also, stimulus would get in the way of needed structural adjustment.

First of all, we’ve been here before — in early 2010. Maybe this time is different, and Lucy won’t snatch away the recovery football again — but why act before we’re sure?

Second, even if recovery is solid this time, our economy is likely to stay depressed for quite a while. Use the Atlanta Fed Jobs Calculator (at; to reach an unemployment rate of 5.5 percent within four years — four years! — we would need 179,000 jobs a month. Are you sure we’ll do that well?

Third, Mr. Pearlstein’s rhetorical question — why postpone needed fiscal adjustments? — has a very good answer: because we’re in a liquidity trap, and the Fed can’t offset the economic downside. This is a very bad time for austerity.

Fourth, there have been many calculations about the extent to which this really is a structural slump, the result of workers in the wrong places or industries. None of them support the view that this is more than a minor factor. Why does it play such a central role in conventional wisdom about what has to be done?

Finally, it just isn’t true that structural adjustment, to the extent that we do need it, proceeds faster and more easily when the economy is depressed. Workers won’t leave jobs if they aren’t reasonably sure of finding others; firms won’t invest even in useful new technologies unless there’s adequate demand.

Keeping the economy weak is a way to postpone good changes, not accelerate them.

So I find this very depressing. Once again, at the first hint of good news, the usual crowd, even good guys like Mr. Pearlstein, is itching to pivot away from jobs.

Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.