Turning Japanese

Said Krugman: "It boggles me how
Any long-term concerns may allow
Our political corps
To mostly ignore
The depression we're living in now."

Ev'ryone calls for a plan
On inflation, which isn't at han'.
If we tighten too soon,
We won't be immune
To a Lost Decade à la Japan."

Appearing on the Bloomberg Surveillance program with Tom Keene and Sara Eisen this morning, Princeton University economics professor Paul Krugman repeated his tireless message that the US is no longer in a debt crisis, but a jobs crisis.  As he explains in his most recent book, End This Depression Now, Prof. Krugman emphasized that, in a depression, short-term considerations take precedence over the long term, and the usual rules don't apply.  It's not that the long term isn't important, it's just that you have to get there first.  As John Maynard Keynes famously said, "In the long run we're all dead."

So what should we do now?  We should use the government's fiscal powers to rebuild our infrastructure, thereby providing the basis for jobs today and growth in the future, which will make the longer-run deficit problems easier to resolve.  What we should not do is implement fiscal austerity while expecting the Federal Reserve, which already maintains zero interest rates, to stimulate jobs through monetary measures.  Prof. Krugman has only bewilderment for his Stanford rival John Taylor, who is correct in his concerns regarding excessive long-term unemployment, but, says Krugman, resists the policies that would ease the problem.  The inflation fears of so many, and the related worries over the risk of tightening a moment too late, are reminiscent of the "lost decade" of Japan, in which nascent recoveries were repeated cut off by the central bank's premature rate hikes.