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Krugman Says U.S. Fed, Government Are `Sugar Coating' Economic Recovery

Nobel Prize-winning economist Paul Krugman said U.S. officials are “sugar coating” the economic outlook, suggesting the Federal Reserve and President Barack Obama’s administration should launch further stimulus programs.

“This isn’t a recovery, in any sense that matters,” Krugman, a Princeton University professor, wrote in his New York Times column published today. “And policy makers should be doing everything they can to change that fact.”

A report today may show that U.S. gross domestic product rose at an annual pace of 1.4 percent in the second quarter instead of a previously estimated 2.4 percent, according to a Bloomberg News survey. That would be the weakest pace in the year-old recovery. Fed Chairman Ben S. Bernanke is scheduled to speak later today in Jackson Hole, Wyoming.

“We need about 2.5 percent growth just to keep unemployment from rising, and much faster growth to bring it significantly down,” Krugman wrote. “Yet growth is currently running somewhere between 1 and 2 percent, with a good chance that it will slow even further in the months ahead.”

Krugman said the Fed should begin buying more long-term and private debt, announce its intention to keep short-term interest rates low and raise its medium-term inflation target. He also called on the Obama administration to revamp its support for homeowners and step up its criticism of China’s currency policy.

“We’ve already seen the consequences of playing it safe, and waiting for recovery to happen all by itself,” Krugman wrote. “It has landed us in what looks increasingly like a permanent state of stagnation and high unemployment.”

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

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