Krugman Calls for a Second New Deal

Since the onset of the acute phase of the economic crisis in September, pundits and debate moderators have been asking Barack Obama if he plans on scaling back his agenda to compensate for the enormous federal deficit. Many voices in the media have argued that attempting a large-scale agenda that includes a national healthcare program, investment in alternative energy, and an increase in educational spending is simply not feasible when the federal government is responsible for so much of Wall Street's debt.

Nobel Laureate Paul Krugman begs to differ. In his most recent Op-Ed piece in The New York Times, Krugman argues that Obama should march forward with his proposed sweeping reforms.

Bear in mind, also, that this year’s presidential election was a clear referendum on political philosophies — and the progressive philosophy won.
...
This year, however, Mr. Obama ran on a platform of guaranteed health care and tax breaks for the middle class, paid for with higher taxes on the affluent. John McCain denounced his opponent as a socialist and a “redistributor,” but America voted for him anyway. That’s a real mandate.

Barack Obama won 364 electoral votes and a clear majority of the popular vote. Americans endorsed a progressive policy platform, especially on economic issues, because they realized that the status quo would not heal the economic recession and solve the domestic issues facing the nation. So it's clear that there is widespread support for a progressive agenda.

What about the assertion that we simply can't afford more federal spending right now? Krugman writes that federal spending on crucial programs, not tax cuts and trickle-down theories, is exactly what the United States needs during this time of crisis. A few more years of running on a federal deficit will probably be necessary with or without the enactment of Obama's domestic policy agenda.

But standard textbook economics says that it’s O.K., in fact appropriate, to run temporary deficits in the face of a depressed economy. Meanwhile, one or two years of red ink, while it would add modestly to future federal interest expenses, shouldn’t stand in the way of a health care plan that, even if quickly enacted into law, probably wouldn’t take effect until 2011.

The recession is not a reason to abandon a progressive agenda; rather, it is an opportunity to demonstrate the effectiveness of progressive ideas in our economy. Advancing such an agenda is a moral imperative in a time when working and middle class Americans are feeling the pain of unemployment, a declining market, and a lack of credit. Enhancing government services will provide safety for those most at risk during this recession.

And right now happens to be one of those times when the converse is also true, and good morals are good economics. Helping the neediest in a time of crisis, through expanded health and unemployment benefits, is the morally right thing to do; it’s also a far more effective form of economic stimulus than cutting the capital gains tax. Providing aid to beleaguered state and local governments, so that they can sustain essential public services, is important for those who depend on those services; it’s also a way to avoid job losses and limit the depth of the economy’s slump.

So a serious progressive agenda — call it a new New Deal — isn’t just economically possible, it’s exactly what the economy needs.

President-elect Obama has a reason to pursue a progressive agenda and a mandate to do so. What we need is a Second New Deal, not a postponement of the progressive agenda. I share Paul Krugman's confidence in Barack Obama's ability to move quickly to enact this agenda.