Dear Mr. Obama

Paul Krugman, this years recipient of the Nobel Memorial Prize in Economic Science (funnier version here), wrote a straight forward and compelling article on what must be done to fix the economy. It's peculiar that I liked it; if I hear one more person say "green" or talk about the economy I'm likely to blow up an animal shelter.

But first, shameless self promotion:

"But let's be clear: Tax cuts are not the tool of choice for fighting an economic slump. For one thing, they deliver less bang for the buck than infrastructure spending, because there's no guarantee that consumers will spend their tax cuts or rebates."

Thanks Mr. Krugman!

If you don't feel like reading the article here are the... most interesting parts?

"The U.S. economy needs to add more than a million jobs a year just to keep up with a growing population. Even before the crisis, job growth under Bush averaged only 800,000 a year — and over the past year, instead of gaining a million-plus jobs, we lost 2 million. Today we're continuing to lose jobs at the rate of a half million a month." That means a 9% unemployment rate where about 4-5% is considered "natural". That's 20 million Americans.

"For the past half century the Federal Reserve... has been taking care of day-to-day, and even year-to-year, economic management. Your fellow presidents were just along for the ride."

"Reagan had absolutely nothing to do with [the economic boom of 1984]. It was, instead, the work of Paul Volcker, whom Jimmy Carter appointed as chairman of the Federal Reserve Board in 1979 (and who's now the head of your economic advisory panel). First Volcker broke the back of inflation, at the cost of a recession that probably doomed Carter's re-election chances in 1980. Then Volcker engineered an economic bounce-back. In effect, Reagan dressed up in a flight suit and pretended to be a hotshot economic pilot, but Volcker was the guy who actually flew the plane and landed it safely." This however won't work because:

"[W]hile the Fed can still print money, it can't drive interest rates down. Why? Because those interest rates are already about as low as they can go. As I write this letter, the interest rate on Treasury bills is 0.005 percent — that is, zero." This however hasn't led to lower interest rates as banks are afraid to lend money out, and who's spending (the effect of borrowing)? So basically this crisis is all on the president and legislative branches of government.

"There was, however, a big difference between FDR's approach to taxpayer-subsidized financial rescue and that of the Bush administration: Namely, FDR wasn't shy about demanding that the public's money be used to serve the public good. By 1935 the U.S. government owned about a third of the banking system."

"Conservatives will accuse you of nationalizing the financial system, and some will call you a Marxist. (It happens to me all the time.) And the truth is that you will, in a way, be engaging in temporary nationalization. But that's OK: In the long run we don't want the government running financial institutions, but for now we need to do whatever it takes to get credit flowing again."

"[Y]ou have to get job creation right — which FDR never did." FDR, concerned about budget defecits, also cut spending and raised taxes in 1937. This led to a recession. Learn from this.

"The lesson from FDR's limited success on the employment front, then, is that you have to be really bold in your job-creation plans."

"'Full employment' means a jobless rate of five percent at most, and probably less. Meanwhile, we're currently on a trajectory that will push the unemployment rate to nine percent or more. Even the most optimistic estimates suggest that it takes at least $200 billion a year in government spending to cut the unemployment rate by one percentage point. Do the math: You probably have to spend $800 billion a year to achieve a full economic recovery." Krugman goes on to say that this money should be spent on things of lasting value such as infrastructure. The hard part will be finding where to spend the money. Currently there are only about 150 billion in "shovel ready" infrastructure programs. Money can also go to state governments while tax cuts should go to the poor and middle class who are more likely to spend the extra money.

"Now my honest opinion is that even with all this, you won't be able to prevent 2009 from being a very bad year. If you manage to keep the unemployment rate from going above eight percent, I'll consider that a major success."

"The biggest, most important legacy you can leave to the nation will be to give us, finally, what every other advanced nation already has: guaranteed health care for all our citizens." Krugman advocates a shared payment/subsidized healthcare plan as he thinks a single pay (government) backed health care system, although more efficient, would be unpalatable to America currently.

"[L]et's put the costs of the economic-recovery program in perspective. It's possible that reviving the economy might cost as much as a trillion dollars over the course of your first term. But the Bush administration wasted at least twice that much on an unnecessary war and tax cuts for the wealthiest; the recovery plan will be intense but temporary, and won't place all that much burden on future budgets."

"[The Obama] team is well aware of the need to wind down the war in Iraq — which is, by the way, costing about as much each year as the insurance subsidies we need to implement universal health care."

"There is, however, one area where I feel the need to break discipline. I'm an economist, but I'm also an American citizen — and like many citizens, I spent the past eight years watching in horror as the Bush administration betrayed the nation's ideals. And I don't believe we can put those terrible years behind us unless we have a full accounting of what really happened." He gives the convincing argument that when Iran-Contra was swept under the rug many years ago those involved became responsible for similar transgressions 20 years later... in the second Bush Administration.

At second glance the article appears fairly partisan. But he's advocating better health care, economic recovery, ending pointless wars, and he won a Nobel Prize... I'll listen.