The U.S. and Europe must both adopt much bigger fiscal stimulus programs to pull their economies up from the muck, says Nobel laureate economist Paul Krugman.
“The U.S. isn’t doing enough to fight the economic crisis, and Europe is doing a bit less than half as much as the U.S.,” he tells Bloomberg TV.
“That’s inadequate. Europe is facing a decline in GDP that likely will be larger than the U.S. But fiscal stimulus is much smaller in Europe, and there is much less vigorous activity from the European Central Bank than the Fed.”
The United States and Europe are making the same mistake as Japan did in the 1990s by not fighting hard enough against their economic declines, Krugman says.
“My back of the envelope estimate is that on both sides of the Atlantic, we should have stimulus that peaks at 4 percent of GDP for a year,” Krugman says.
“We are now looking at a 2.5 percent for the U.S. and substantially less than that in Europe. I’m calling for something vastly bigger than anything that’s on the table now.”
Krugman says he’s disappointed with the Obama administration’s policies.
“It looks like the Obama plan will close only about one-third of the [spending] gap that we’re facing,” he says. “There’s a real risk of deflation.”
Others, however, say Obama is doing too much.
Experts from Steve Forbes to Donald Trump complain that the administration’s tax hikes will inhibit economic recovery.
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