Economy Needs Another Big Stimulus Push: Krugman

ECONOMY, PAUL KRUGMAN, ECONOMIST, FEDERAL, STIMULUS, UNEMPLOYMENT, INFRASTRUCTURE

CNBC.com

| 30 Aug 2010 | 05:20 PM ET

The US economy needs another government stimulus program as big as the one President Obama pushed through Congress in February 2009, economist Paul Krugman said on CNBC Monday.

"Everything is pointing to the need for more spending," Krugman said. "The economy remains depressed."

Such a massive new spending program is unlikely to be proposed soon, however, especially with the mid-term elections approaching.

Krugman said the effects of the stimulus dollars on the economy are fading out, with the maximum impact on growth in the final quarter of 2009.

The money could immediately be spent on infrastructure needs throughout the country that are not being met.

"Even aside from the need to stimulate the economy, when the federal government can borrow very cheaply, that’s probably a good idea to get some projects started," added Krugman, a Nobel-prize winning economist who is an op-ed columnist for The New York Times.

According to Krugman, the bond market, which has soared to record heights, is in effect saying there's no need to worry about deficits.

"They are happy to lend the federal government money at very low rates," he said. "The bond market is telling us it’s terrified of deflation, of a weak economy for a very long time. So, no, all of the economic data make the case for a stimulus."

Additional stimulus could come from tax cuts, but not tax cuts for the wealthy or for corporations. Neither are likely to spend much of it to make a difference, Krugman said.

"If you give a temporary tax cut to wealthy people who are likely to be highly liquid, they are not going to spend very much of it at all," Krugam said. "Give a temporary tax cut to corporations, who are sitting on piles of cash, they are not going to spend any of it."

A payroll tax cut would be better, since it would put money in the hands of people "who might very well spend it," he added. "But basically, I would take whatever we can, except that those high end tax cuts, corporate tax cuts, are going where the problem isn’t; it's just a waste of money," Krugman said.