PAUL KRUGMAN - THIS YEARS'S NOBEL PRIZE WINNER FOR ECONOMICS

November 21, 2008
Op-Ed Columnist
The Lame-Duck Economy
By PAUL KRUGMAN
Everyone’s talking about a new New Deal, for obvious reasons. In 2008, as in 1932, a long era of Republican political dominance came to an end in the face of an economic and financial crisis that, in voters’ minds, both discredited the G.O.P.’s free-market ideology and undermined its claims of competence. And for those on the progressive side of the political spectrum, these are hopeful times.

There is, however, another and more disturbing parallel between 2008 and 1932 — namely, the emergence of a power vacuum at the height of the crisis. The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now.

It’s true that the interregnum will be shorter this time: F.D.R. wasn’t inaugurated until March; Barack Obama will move into the White House on Jan. 20. But crises move faster these days.

How much can go wrong in the two months before Mr. Obama takes the oath of office? The answer, unfortunately, is: a lot. Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating.

Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago.

Yet economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts. And financial aid for the beleaguered auto industry is being stalled by a political standoff.

How much should we worry about what looks like two months of policy drift? At minimum, the next two months will inflict serious pain on hundreds of thousands of Americans, who will lose their jobs, their homes, or both. What’s really troubling, however, is the possibility that some of the damage being done right now will be irreversible. I’m concerned, in particular, about the two D’s: deflation and Detroit.

About deflation: Japan’s “lost decade” in the 1990s taught economists that it’s very hard to get the economy moving once expectations of inflation get too low (it doesn’t matter whether people literally expect prices to fall). Yet there’s clear deflationary pressure on the U.S. economy right now, and every month that passes without signs of recovery increases the odds that we’ll find ourselves stuck in a Japan-type trap for years.

About Detroit: There’s now a real risk that, in the absence of quick federal aid, the Big Three automakers and their network of suppliers will be forced into liquidation — that is, forced to shut down, lay off all their workers and sell off their assets. And if that happens, it will be very hard to bring them back.

Now, maybe letting the auto companies die is the right decision, even though an auto industry collapse would be a huge blow to an already slumping economy. But it’s a decision that should be taken carefully, with full consideration of the costs and benefits — not a decision taken by default, because of a political standoff between Democrats who want Mr. Paulson to use some of that $700 billion and a lame-duck administration that’s trying to force Congress to divert funds from a fuel-efficiency program instead.

Is economic policy completely paralyzed between now and Jan. 20? No, not completely. Some useful actions are being taken. For example, Fannie Mae and Freddie Mac, the lending agencies, have taken the helpful step of declaring a temporary halt to foreclosures, while Congress has passed a badly needed extension of unemployment benefits now that the White House has dropped its opposition.

But nothing is happening on the policy front that is remotely commensurate with the scale of the economic crisis. And it’s scary to think how much more can go wrong before Inauguration Day.

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Anonymous has left a new comment on your post "comment":


don't forget about the maintenance department, the STP/Water Operator, Security, and of course the infamous Rec Director who runs all the off season events without a staff!
thank you.

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Anonymous has left a new comment on your post "comment":

Thank you Cheryl for KEEPING LAKE ADVENTURE ALIVE!!! Like most people complain about the way things are, well, wake up and realize without Cheryl, Joyce, Joe where would we be as far as running LA. This group, without a manager, have been doing everything to continue the operation and every property owner should give them a BIG THANK YOU when they see them or send them a Xmas card showing your appreciation. Also, the board should take notice of the type of workers they are and reward them with a raise that with their performance, in these times of confusion of management, is truly deserved. THANK YOU THANK YOU THANK YOU!!!!....

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Anonymous has left a new comment on your post "comment":

Thank you Cheryl for KEEPING LAKE ADVENTURE ALIVE!!! Like most people complain about the way things are, well, wake up and realize without Cheryl, Joyce, Joe where would we be as far as running LA. This group, without a manager, have been doing everything to continue the operation and every property owner should give them a BIG THANK YOU when they see them or send them a Xmas card showing your appreciation. Also, the board should take notice of the type of workers they are and reward them with a raise that with their performance, in these times of confusion of management, is truly deserved. THANK YOU THANK YOU THANK YOU!!!!....

la web page

the la web page has some changes -- there are 2 ways to check the official weather report for the pocono region with links to wnep tv station and the pa state weather web page -- this is a good addition as well as posting of weather events at la by cheryl as they occur -- she also will post any weather related incidents that occur at la -- that's good progress

i see by the notice on the web page that the wifi service at the club house was shut down the beginning of october -- if this is a fact it is wrong -- computers are the way many members communicate with friends and family and check all sorts of information and access entertainment on the web-- this is equivalent to the introduction of the pay phones at la to give members a way to communicate back in the old 70's -- today there are no more pay phones because of the availability of phone service through land lines and now cell phones-- soon land lines will be gone --- members and most of the world outside la use the internet for all forms of communication and entertainment -- but not in la in the winter--young people particularly are tuned into the internet and i know from my family the kids won't even come here if they didn't have internet service-- the bod should want to make la to be attractive to all-- all the time and not just part of the year -- this attitude is why la members only show up 4 or 5 weekends and holidays a year-- this is as the old saying goes " penny wise and dollar foolish " -- save a few dollars on wifi service and that will keep la financially sound -- yea!!!!

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