Krugman: Government Should Solve Unemployment By Hiring People To Repair Roads

May 30th, 2011 1:49 PM

Despite Obamanomics' failure to stimulate the economy, Nobel laureate Paul Krugman still believes Washington can solve all that ails us if we would just spend more money we don't have.

Toward that end, the avowed liberal in his Monday New York Times column called for a new New Deal-like program to hire unemployed people to - wait for it - repair roads:

The core of our economic problem is, instead, the debt — mainly mortgage debt — that households ran up during the bubble years of the last decade. Now that the bubble has burst, that debt is acting as a persistent drag on the economy, preventing any real recovery in employment. And once you realize that the overhang of private debt is the problem, you realize that there are a number of things that could be done about it.

For example, we could have W.P.A.-type programs putting the unemployed to work doing useful things like repairing roads — which would also, by raising incomes, make it easier for households to pay down debt.

Ah yes, Franklin Delano Roosevelt's famous Works Progress Administration.

Started in 1935, and peaking in 1938, the program never came close to achieving what proponents had hoped.

The unemployment rate was at 20.1 percent at WPA's commencement. Three years later, it was still 19 percent.

Sounds almost as effective as President Obama's 2009 stimulus plan.

Yet what's really hysterical about Krugman pushing this idea now is that in November 2008, he admitted on ABC's "This Week" that it was World War II that ended the Great Depression, not any of FDR's New Deal policies:

PAUL KRUGMAN, NEW YORK TIMES: What actually happened was, you know, there was an enor, there was a collapse in the financial system, which was not restored for a long time. There was a persistent deep slump in consumer demand, and therefore no investment demand and so you're stuck in this trap. Roosevelt got the economy moving somewhat. By 1937 things were a lot better than they were in 1933...

GEORGE WILL: And then they tanked (?)...

KRUGMAN: ...then he was persuaded to balance the budget, or try to, and he raised taxes and cut spending, and the economy went back down again, and it took an enormous public works program known as World War II to bring the economy out of a Depression.

"It took an enormous public works program known as World War II to bring the economy out of a Depression."

Indeed. Which means nothing FDR did prior to that point - including WPA - had its desired effect.

So why propose it now?

Krugman's response might be that we should have a similar public works program today as what we saw during World War II, but let's understand that total federal spending in 1940 was $9.5 billion. By 1945, this had risen almost tenfold to $93 billion.

Such an increase in today's budget would create a deficit greater than $30 trillion making our dollar and our treasury paper totally worthless.

Of course, this isn't specifically what Krugman is suggesting, but if WPA didn't work, and he acknowledges it took an almost tenfold increase in spending to end the Depression, exactly how much does he think would be necessary to get us out of our current economic condition?

In reality, I'm afraid to ask for his answer might be more shocking than what was hiding in Norman Bates's fruit cellar.