Business columns: The best way to stave off a depression

Paul Krugman
The New York Times

Anyone who doubts the severity of our economic plight should look at the latest figures on the state of manufacturing, said Paul Krugman. A “terrifying” industry report last week found that U.S. factory production is at a 28-year low, while all around the world, manufacturing is plunging. “Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.” What’s also terrifying is that congressional Republicans are poised to block or water down the government spending that could prevent a recurrence of that nightmare. The Republican caucus is full of adherents of the late Milton Friedman, the conservative economist who famously argued “that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity.” Well, we’ve tried that remedy. The Federal Reserve has flooded the economy with cash, yet banks still aren’t lending and businesses are failing in record numbers. The solution to mass unemployment is “large-scale deficit spending by the government.” We’ll eventually get a stimulus package of some sort, but if it’s too stingy, brace yourselves for “Great Depression II.”