Before a packed crowd at AFL-CIO headquarters in Washington, D.C., Nobel-Prize winning economist Paul Krugman said the way to ease the economic crisis in the United States is to create more jobs through increased public investment, raising wages and restoring workers’ ability to bargain collectively. Austerity policies are the last thing we should be doing. The event was part of AFL-CIO's Book Club series. Krugman discussed major themes in his book End This Depression Now!, which was just released in paperback.
AFL-CIO President Richard Trumka and Krugman both called for the repeal of the sequester. Congressional Republicans forced sequestration to take effect in their July 2011 round of economic hostage taking, threatening to throw the government into default. Sequestration will cost our fragile economy and estimated 1 million jobs and could derail the weak recovery.
Krugman highlighted the need for rising wages and increased worker bargaining power to improve economic growth and reduce unemployment.
The "Very Serious People," as Krugman called policy makers, have focused on the deficit rather than unemployment as our key problem. Had they paid more attention to successful economic strategies used to get us out of the great Depression and other crises, they would be rejecting austerity policies (which have widely made things worse in Europe), and would be engaging in more stimulus spending.
The U.S. trade deficit, however, is a real threat—and the reason it’s so hard to have full employment in the U.S., Krugman said. “The trade deficit is a clear and present danger to the economy. The budget deficit is not.”
Champions of austerity, not only ignored history and what was happening in Europe, but made a wide range of gloomy predictions that have all failed to materialize. Increased deficit spending isn't a significant problem, Krugman argued, it's the right thing to do in a down economy to stabilize things and increase economic growth and job creation.
The roots of the economic crisis are multifaceted. Among the biggest contributors were deregulation, the failure to extend regulation as the finance sector turned to more and more exotic forms of banking, the housing bubble, rising household debt and a mass move in the private sector towards paying down debt. Krugman said that if everyone cuts back spending and pays debt at the same time, demand decreases and the economy suffers. The biggest problem we face now is the lack of demand.
Krugman, Trumka said, “skewers illogic and false logic about five times a week at least and who always … always … sees the regular lives behind the cold economic numbers and the hard realities that exert so much pressure on our lives."
"Working people are excluded far too much from our conversation" and a strong labor movement makes that possible, Krugman said. “America's workers get ignored unless they organize.”