Soccer Dad

Invest. invest. invest.

Paul Krugman isn't shy about advocating the course that President elect Obama ought to follow in Franklin Delano Obama.

Suddenly, everything old is New Deal again. Reagan is out; F.D.R. is in. Still, how much guidance does the Roosevelt era really offer for today's world?

The answer is, a lot. But Barack Obama should learn from F.D.R.'s failures as well as from his achievements: the truth is that the New Deal wasn't as successful in the short run as it was in the long run. And the reason for F.D.R.'s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.

(emphasis mine)

And if you read this Financial Times article, it appears that caution likely won't be one of the features of an Obama administration.

US President-elect Barack Obama intends to push a comprehensive programme of social and economic reform beyond an immediate emergency stimulus package, Rahm Emanuel, the next White House chief of staff, indicated on Sunday.

Mr Emanuel brushed aside concerns that an Obama administration would risk taking on too much when it takes office in January. He said Mr Obama saw the financial meltdown as an historic opportunity to deliver the large-scale investments that Democrats had promised for years.

(via memeorandum)

Calling them "investments" rather than "spending" is a simple way of packaging and it will allow the Obama administration to spend more freely. I know it's controversial, but a couple of economists have recently argued that the Depression actually became great because of, not despite, FDR's intervention.

"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."

(h/t Q and O)

Ironically, then, John McCain was likely right when he said that the fundamentals of the economy are strong, but that statement may well have doomed his candidacy. As Charles Krauthammer observed, the financial meltdown had a secondary effect:

This did not just have the obvious effect of turning people against the incumbent party, however great or tenuous its responsibility for the crisis. It had the more profound effect of making people seek shelter in government.

This will give the new administration the political cover it needs to carry out its ambitious plans.