We Have the Technology and Know-How

If the Democrats do lose the House - see post below - it will be because A) the ARRA stimulus wasn't big enough B) Obama didn't nominate people to the Fed right away / Bernake is failing at his job C) a combo of A and B.

Part of the problem I think is that Obama's economic advisers didn't see the European sovereign debt crisis coming and it hit hard in May 2010.

However, Obama and his advisers should have known that financial crises of the type we just experienced are tough to come back from in a timely manner. They seemed to believe that they could come back for more stimulus if they needed it, but as Krugman pointed out, they were wrong. Plus the Fed is up against the zero bound and the FOMC is made up of dipshits.

The one good thing about this crisis is that it once again proves how Keynsian theories are correct for the most part, even though people want to have the debate all over again. Krugman blogs:

On the analytical front: many economists these days reject out of hand the Keynesian model, preferring to believe that a fall in supply rather than a fall in demand is what causes recessions. But there are clear implications of these rival approaches. If the slump reflects some kind of supply shock, the monetary and fiscal policies followed since the beginning of 2008 would have the effects predicted in a supply-constrained world: large expansion of the monetary base should have led to high inflation, large budget deficits should have driven interest rates way up. And as you may recall, a lot of people did make exactly that prediction. A Keynesian approach, on the other hand, said that inflation would fall and interest rates stay low as long as the economy remained depressed. Guess what happened?

On the policy front: there’s certainly a real debate over whether Obama could have gotten a bigger stimulus. What we do know, however, is that his top advisers did not frame the argument for a small stimulus compared with the projected slump purely in political terms. Instead, they argued that too big a plan would alarm the bond markets, and that anyway fiscal stimulus was only needed as an insurance policy. Neither of these arguments came from macroeconomic theory; they were doctrines invented on the fly. Samuelson 1948 would have said to provide a stimulus big enough to restore full employment -- full stop.

So what we have here isn’t really a lack of a workable analytical framework. The disaster we’re facing is the result of the refusal of economists, both in and out of the corridors of power, to go with the perfectly good framework we already had.

Which is reassuring in a way. The Pain Caucus, the Austerians, the "structuralists," the ones who are trying to usher in a new Dark Ages, all believe in conservative economic "thought" and are uncomfortable with Big Government. They can't admit that if it had not been for Big Government we'd currently be experiencing a second Great Depression.