Krugman is right: This is not the time to reverse economic policies


The debate over economic policy has taken a predictable turn, and it's going to be a lamentable one, New York Times (NYT) columnist and Noble Prize-winning economist Paul Krugman says, if we repeat the mistakes of 1936-37.

Just as the critics of President Franklin D. Roosevelt did during the Great Depression, the critics of President Barack Obama's fiscal stimulus package and liquidity-enhancing policies are questioning whether the nation should continue these programs to get the U.S. economy moving again.

In 1936-37, the critics won by harping about inflation. And FDR and his policy makers reversed course. FDR sought to balance the budget in 1936-37 and the U.S. Federal Reserve tightened monetary policy -- despite an economy that was well short of full employment. A liquidity trap ensued, Krugman argues, plunging the U.S. economy back into crisis. The Depression worsened, and full recovery had to wait until increased government spending occurred during World War II.