Nobel Prize winning economist, Paul Krugman, offers advice for the new
A Letter to the new president. What Obama must do.
Dear Mr. President:
Like FDR three-quarters of a century ago, you're taking charge at a moment when all
the old certainties have vanished, all the conventional wisdom been proved wrong. We're
not living in a world you or anyone else expected to see. Many presidents have to deal
with crises, but very few have been forced to deal from Day One with a crisis on the
scale America now faces.
So, what should you do?
In this letter I won't try to offer advice about everything. For the most part I'll stick to
economics, or matters that bear on economics. I'll also focus on things I think you can or
should achieve in your first year in office. The extent to which your administration
succeeds or fails will depend, to a large extent, on what happens in the first year - and
above all, on whether you manage to get a grip on the current economic crisis.
The Economic Crisis
How bad is the economic outlook? Worse than almost anyone imagined.
The economic growth of the Bush years, such as it was, was fueled by an explosion of
private debt; now credit markets are in disarray, businesses and consumers are pulling
back and the economy is in free-fall. What we're facing, in essence, is a yawning job gap.
The U.S. economy needs to add more than a million jobs a year just to keep up with a
growing population. Even before the crisis, job growth under Bush averaged only
800,000 a year - and over the past year, instead of gaining a million-plus jobs, we lost 2
million. Today we're continuing to lose jobs at the rate of a half million a month.
There's nothing in either the data or the underlying situation to suggest that the plunge
in employment will slow anytime soon, which means that by late this year we could be 10
million or more jobs short of where we should be. This, in turn, would mean an
unemployment rate of more than nine percent. Add in those who aren't counted in the
standard rate because they've given up looking for work, plus those forced to take part-
time jobs when they want to work full-time, and we're probably looking at a real-world
unemployment rate of around 15 percent - more than 20 million Americans frustrated in
their efforts to find work.
The human cost of a slump that severe would be enormous. The Center on Budget
and Policy Priorities, a nonpartisan research group that analyzes government programs,
recently estimated the effects of a rise in the unemployment rate to nine percent - a
worst-case scenario that now seems all too likely. So what will happen if unemployment