It may not be nearly as bad as the financial crisis of 2008, but this was undoubtedly the most frenzied week on the markets since then.
And yet while we spent much of our week asking people to explain what was behind the daily roller-coaster ride, an important theme emerged throughout the week: One got the sense that economists from across the spectrum are increasingly suggesting a variety of prescriptions to help jump-start the economy.
In fact, what was so striking this past week is that while policymakers have spent months mired in a battle and stalemate about either cutting back spending or pushing small new initiatives to stimulate growth, several of our PBS NewsHour guests from both sides of the aisle were strongly suggesting politicians need to think past the current conventional wisdom in Washington.
Christina Romer, the former head of President Obama’s Council of Economic Advisers who originally pushed for a stimulus in the range of $1 trillion back in 2009, said it was time for her ex-boss to talk more boldly.
“Were I still advising President Obama,” she told Judy Woodruff, “I would be urging him to come forward with a very bold two-pronged fiscal plan. I think it absolutely needs more fiscal help for the economy in the short run, something like a very big tax cut for firms that hire unemployed workers.”
Moreover, Romer told us before the program that the smaller initiatives that had been proposed in recent days — such as a proposal by the president to encourage employers to hire more veterans by providing tax credits that could cost $120 million over two years — were far too small.
To get job creation really going, she said, the president should be proposing a jobs program in excess of $100 billion.
She also said the president should aim high again for a longer-term deficit and debt-cutting package.
“Tell that super committee you don’t want them come up with $1.5 trillion of deficit reduction. Make it $3 trillion. And I think that would be a good two-pronged strategy that would really help to deal with the problem.”
Nobel Prize-winning economist and New York Times columnist Paul Krugman has long lamented the push to austerity to bring down deficits.
He said on Monday’s program that the day’s sharp plunge was not really about Standard and Poor’s decision to downgrade the long-term credit rating of the U.S. government or its eventual solvency.
Instead, he said: “It looked like a growth panic. It looked like the markets, investors are afraid that this global economy is going back into the ditch, and nobody is prepared to act. And in a way, what the markets were telling us was, you guys have been obsessing on the wrong things. Sure, we have a long-run fiscal problem, but right now we need to be getting this economy moving. And that’s the thing that nobody has been talking about.”
Economist Matthew Slaughter was a White House adviser for the George W. Bush administration — now at Dartmouth University — who appeared with Romer on the NewsHour and argued that a more expansive plan to increase trade and exports was essential.
“I would start with the three pending free trade agreements that the United States has yet to ratify with Korea, with Panama and Colombia,” he said. “Ratifying those as soon as possible is really important, hopefully closing a broader Doha development round would also be important through the World Trade Organization. We could be doing more very soon to try to encourage foreign-based multinationals to be doing hiring and capital investment here in America. They’re traditionally very strong companies.”
“Immigration reforms come into the picture as well,” he added. “High-skilled immigrants tend to start new businesses much more in America than native-born Americans do. And they bring financial and personal links to the global economy that can help pull exports out of America as well.”
Economist Ken Rogoff, formerly of the IMF and the co-author of a seminal work on financial crises called “This Time Is Different,” focused his ideas on a different tack, asking the Fed to step up its game. He appeared with Krugman on Monday’s NewsHour.
As he wrote in a Financial Times column, it’s time for central bankers to break out of their traditional targets on keeping inflation low to allow for more growth.
“I think, definitely, we need to see higher inflation,” is how Rogoff put it on our broadcast. “We don’t need to see the Fed just talk about QE3, more bond buying, but QE3 for — they should announce that they’re trying to hit significantly higher inflation. They really have to move decisively. It was really half-baked and timid the first time they did it. I don’t think they’re out of bullets at all. I think it can be effective. But they need to do something.”
On that front, Romer also said she thought it was time for yet another round of more aggressive action by the Federal Reserve. That was a big part of her assessment of the Fed’s statement this week about slow growth through 2012 — and its explicit intention to keep interest rates at near zero levels through then, as well as being open to another round of monetary policy.
For the last several months, she said, “the way the Fed has dealt with its internal conflict is to, frankly, not do very much. And I think fact that Chairman Bernanke was willing to taken an action that brought forth three dissents was a sign that he and the majority are willing to fight for more expansionary policies, willing to have that very public fight. And I think that’s important, because I think the facts are very much on the chairman’s side.”
Finally, international economist Catherine Mann of Brandeis University said part of the ultimate solution to the debt crisis and the continuing fallout from the recession would require banks and bondholders to eat more losses than they have been willing to do until now.
“If you take 10 years to try to resolve a sovereign debt crisis, the countries that are involved have a decade of loss,” she said Thursday. “That is what happened in Latin America. There are ways to resolve the debt crisis. Maybe it does involve some haircuts on the principal or on the interest rate or the terms of the maturity.”
Whether any of these ideas are taken up at a time when there seems to be very little political will to do anything significant in Washington remains to be seen.
Ultimately, Krugman and Rogoff predicted, the U.S. could remain mired in a period of slow growth or what some see as economic stagnation. Krugman said it would likely turn out be short of a true Great Depression again but a “lesser depression” remained possible.
“If you’re unemployed now, I really feel for you because your chance of getting reemployed is very low,” he said. “And so this is — this is depressing. And we need somebody to stand up — in a way that the president didn’t, by the way, this afternoon — and say, we are on the wrong track. We are not — we are not dealing with the problem at hand and at least to call out the people who are standing in the way of doing the right things.”
Murrey Jacobson is the national affairs editor for the PBS NewsHour.