THE BURNED OVER DISTRICT

Today Paul Krugman delineates the differences between the problems facing Greece and the disaster facing our economy. While the results may be similar the causes and cures are very different.

For the past few months, much commentary on the economy — some of it posing as reporting — has had one central theme: policy makers are doing too much. Governments need to stop spending, we’re told. Greece is held up as a cautionary tale, and every uptick in the interest rate on U.S. government bonds is treated as an indication that markets are turning on America over its deficits. Meanwhile, there are continual warnings that inflation is just around the corner, and that the Fed needs to pull back from its efforts to support the economy and get started on its “exit strategy,” tightening credit by selling off assets and raising interest rates.

And what about near-record unemployment, with long-term unemployment worse than at any time since the 1930s? What about the fact that the employment gains of the past few months, although welcome, have, so far, brought back fewer than 500,000 of the more than 8 million jobs lost in the wake of the financial crisis? Hey, worrying about the unemployed is just so 2009.

But the truth is that policy makers aren’t doing too much; they’re doing too little. Recent data don’t suggest that America is heading for a Greece-style collapse of investor confidence. Instead, they suggest that we may be heading for a Japan-style lost decade, trapped in a prolonged era of high unemployment and slow growth.

Money is the lifeblood of the economy, but for it to work it has to move. When it sits and waits it is a poison to that economy. And when the consumer and commercial segments won't move their money the only segment left to save the economy is the government, despite the screeching of the deficit hawks. People recognize this, indeed, the first comment for this column outlines anexcellent solution. From commenter JimF:

If we need to transfer our country's investments from financial-gambling to productivity, start by a) taxing carried interest (VCs, hedge funds, and Wall St.) at ordinary income and b) taxing every single stock or derivative trade at a tiny fraction of a percent, c) end farm subsidies, which incent sugar, and turning food into fuel, d) bring troops home from Afghanistan, e) cut the military budget by 30%, so it is still several times larger than every other military budget in the world, f) putting an overhead cap of 8% on insurance companies, g) add a $1 a gallon tax to gasoline to partially pay for its cost to our economy and health.

But as he also notes, finding a politician with the courage to do what is right is a Sisyphean task.