Krugman: Economic Recovery Need Not Be Slow

… but a fatalistic approach could make it slow. So what approach should we take?

We are not, after all, suffering from supply-side problems. We don’t have high unemployment because workers lack the necessary skills, or are stuck in the wrong industries or in the wrong locations. The hypothesis that we’re mainly suffering structural unemployment has been repeatedly shot down by evidence. This is a demand-side slump; all we need to do is create more demand.

That’s it, in a nutshell. And governments have the tools to create demand even when short-term interest rates are already effectively zero. Krugman offers more on what we could be doing… putting aside the political question… to get people back to work.

 

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