Economist: Recovery may take until 2011

Economist: Recovery may take until 2011 Nobel-prize winning economist and New York Times columnist Paul Krugman said Friday the U.S. economy needs a big, fast fiscal stimulus on the order of $600 billion.

Krugman

   The economic rescue should focus on infrastructure more than tax rebates to directly create jobs to offset a slump that he characterized as the worst in a quarter century and possibly the worst since the Great Depression.
   “You got to think big. This is not a case where you sort of want to inch up on the problem,” Krugman said in a live interview on CNBC.
   President Bush and others argue that infrastructure spending takes too long to trickle down to consumers, but Krugman said people are more likely to save than spend any cash they get from the government.
   He predicted a $1 trillion deficit next year, adding: “This isn’t a time to think about long-term fiscal responsibility. This is a time to pump money into the economy.”
   On Friday, the federal government reported that the economy shed 240,000 jobs in October for a total of 1.2 million lost jobs in 2008. The unemployment rate is now at 6.5 percent.
   Higher-than-expected job losses and poor retail sales numbers indicate that the worst is yet to come, Krugman said. He predicted the jobless rate will rise above 8 percent and didn’t rule out the possibility that it could head into double-digit territory.
   The U.S. recession is shaping up to be long and deep, with spillover effects around the world. The downturn in consumer spending means less demand for imports and freight transportation.
   The economy and job market could take two or three years to recover, he added.
   “It’s the closest thing to 1932 that I ever expected to see in my lifetime,” the Princeton professor said. ' Eric Kulisch