Krugman believes that the US should raise stimulus spending

11-03-2009 07:21

Paul Krugman, American economist, liberal columnist and author, stated that the United States should raise stimulus spending, in order to prevent “an extensive period of high employment”, as it also would take ten years before full employment returns. Krugman, who won the Nobel Memorial Prize in Economics in 2008, said in a New York Times article: “The stimulus measures were positive but not sufficient. It certainly had a positive effect but it was too little.”

Initial step

Last week’s figures demonstrated that the United States economy grew by 3.5% in the third quarter, stimulated by federal help for the automotive and housing sector. US President Barack Obama considered the economic growth as a “positive sign” as it’s an initial step in creating jobs.

Far from bottoming out

Unemployment will “decline in the end, but extremely sluggish” even if the US economy continues to expand by 3.5%, according to the Nobel Prize-winning economist.
Joseph Eugene Stiglitz, who won the Nobel Memorial Prize in Economic Sciences in 2001, commented on 31 October that the US economy is far from bottoming out and the third quarter expansion would not continue next year.

Negative impact

Unemployment in the US reached the highest level in 26 years last month, 9.8%. Ben S. Bernanke, Chairman of the Federal Reserve, stated in September that the unemployment level above 9% could continue in 2010. The gloomy situation of the economy combined with the high unemployment rate has had a negative impact on investments in factories and equipment, while it also resulted in less investments in employee training and product development, according to Krugman.

Stimulus spending

The professor of economics and international affairs continued by saying: “If things turn out positive, unemployment could drop by half a percentage point yearly, if we consider the present current rates, which would implicate that full employment will take 10 years to return. It is necessary that the US government takes more measures, which isn’t likely given the political prospects.”
The $787 billion stimulus, approved in February, has resulted in saving or creating approximately 640.329 jobs up to know, proved by Obama’s government figures, released on 30 October. The US President’s options are being limited by the $1.4 trillion budget deficit.
Krugman commented: “The question is: Can the US government afford more? Unfortunately, it can’t. A high unemployment rate affects the current economy, but also the future.”