Huh?

Krugman is correct that this attack on him by Josef Joffe in the New Republic isn't very well reasoned. (The New Republic tends to publish this sort of spurious attack every now and then, even though I really like some of their writers like Cottle, Chait and Jonathan Cohn.) Joffe writes:

If the "Great Depression" wouldn’t work, how about the "Long Depression" that American economists date from 1873 to 1896--a slew of panics and crashes bouncing back and forth across the Atlantic, interrupted only by weak growth. "We are now, I fear, in the early stages of a third depression," which, according to the Cassandra of the New York Times op-ed page, will probably look like the nineteenth-century version.

How shall we count the ways in which the current phase is different from the Big D’s that tormented the nineteenth and twentieth centuries? Let’s start with the policies of governments.

I don't think Krugman has ever said it would be exactly like the "Long Depression" just that it wouldn't be as deep as the Great Depression (even though Spain now has 20% unemployment) and that it would be long and grinding.

Joffe doesn't mention the big difference between then and now, developing countries like India and China and Brazil, etc., which the IMF has forcast will grow at a rapid clip.

Joffe asserts the stimulus didn't work and writes lazily:

Above all, stimulus packages don’t deliver much stimulus. The U.S. will run a deficit of $1.5 trillion this year, and unemployment has hardly budged. If you want to know why, look at recent research like "New Keynesian Versus Old Keynesian Government Spending Multipliers," by a team at Stanford (NBER Working Paper No. 14782) and at the data analyzed by Harvard’s Edward L. Glaeser.

Well, many people say the stimulus was too small, included too many ineffectual tax cuts to please Republican Senators, and was canceled out by the austerity measures of all 50 states. It could be that unemployment would be much higher now had it not been for the stimulus.  It almost certainly would have been higher.

Joffe then asserts that governments' deficits are too large:

In the fall of 2008, all governments--from Berlin to Beijing, with Washington in the lead--went into massive overspending from 3 to 5 percent of GDP. Today, the result is a double-digit U.S. shortfall that resembles Greece’s, and a German deficit approaching 6 percent, almost twice as much as permitted by the guardians of the euro.

Does he believe it was a mistake? Doesn't seem like he does. Is it surprising that deficits rise after a financial crisis and recession? It shouldn't be. He ignores the argument that the debt should be paid down once growth picks up again. (Bill Clinton got us to budget surpluses at the end of his term.) Krugman is saying we are at risk of having a double dip, not that deficits aren't a problem in the long term. Joffe is saying we are not at risk of a double dip and that we are more at risk from the invisible bond vigilantes attacking us invisibly in the future.

Krugman says we are trending towards deflation even if there is some growth and corporate profits are back up. This week many large corporations release earnings reports and they are expected to be good. Wall Street is hiring again as optimism takes hold. And Thursday the Senate Banking Committee will hold hearing for nominations to the Federal Reserve. It will be interesting to hear what Senators and the nominees have to say.

But the fact is that the IMF is forecasting unemployment to remain at 9% through 2011. If true this is unacceptable. This will cause long term damage to the economy. Where will the demand come from, another bubble? None of this appears to concern Joffe.

Anyway doesn't look like the economy will get any help from Bernanke:

The Fed and other regulators have urged banks to step up lending to creditworthy small businesses. Despite that, lending to small businesses is declining. Lending has dropped from more than $710 billion in the second quarter of 2008, a period when the country was in a financial crisis, to less than $670 billion in the first quarter of this year.

Mr. Bernanke said it was hard to tell whether the problem was more reflective of banks shying away from making loans to small businesses or a lack of demand from those companies.

Many lawmakers on Capitol Hill have complained that small businesses that want to take out loans are having trouble getting them. Some banks say demand is weak.

I'd guess demand is weak. Dean Baker writes:

The people who could not see an $8 trillion housing bubble before it wrecked the economy are still having a hard time seeing it even after it wrecked the economy. They fail to understand that the economy's problem is due to a loss of demand. We have seen more than $16 trillion in wealth vanish. The demand generated by this wealth cannot be easily replaced without strong action from the government.

If the economy is not going to get any more help on the demand side from Bernanke or the Senate, it will either grind away and enter a long period of deflation - see Japan - or it will turn around of its own accord. We shall see.