Krugman: Government Should Spend $600 Billion to Solve Economic Woes

     As President-elect Barack Obama sorts out his cabinet and determines who will guide policy through his administration, it’s probably a good thing New York Times columnist Paul Krugman isn’t on his short list.

     Krugman appeared on CNBC’s Nov. 7 “Power Lunch” and assigned a price tag to the “progressive agenda” he proposed for Obama in his Nov. 7 New York Times column: $600 billion.

     “I think we’re talking 4 percent of GDP or more,” Krugman told host Trish Regan. “We’re talking probably about something like a $600 billion package. We, you got to think big. This is not a case where you want to sort of inch up on the problem. You got to think big and it’s going to be scary.”

     In the column, Krugman said a trillion dollar deficit was possible, but he told CNBC it was probable in his “Power Lunch” appearance.

     “I think we’re going to have a trillion dollar deficit next year,” Krugman said.

     Krugman – who longs for the days of FDR’s New Deal, according to his column – maintains such a government deficit would be fine because things are just so bad in his view.

     “I mean we got to do something later on to pay the bills,” Krugman said. “But, you know, this is not a time to think about long-term fiscal responsibility. This is a time to pump money into the economy.”

     The risk of such an incredible deficit – which Krugman didn’t recognize – comes in the form of higher taxes down the road. According to a Nov. 6 Forbes magazine column by Cato Institute senior fellow Alan Reynolds, the potential for a tax cut – as promised by Obama throughout his campaign – becomes less likely and the potential for higher taxes more likely.

     “Cynics have suggested that once President-elect Barack Obama confronts a frightening 2009 deficit of at least $1 trillion, he, too, will renege on his ‘middle-class tax cuts,’” Reynolds wrote. “When asked about the Clinton precedent, though, Obama said he would have made different choices. He implied that redistribution through the tax code is his first priority.”