Over the weekend, I read Paul Krugman’s updated version of The Return of Depression Economics.

Krugman lays out the argument that there have been warning signs for years that something was not right in the global economy – from Japan’s long “Growth Depression” to the economic dislocations in Latin America and Asia of the last decade. The collapse of the mortgage industry in the US was the final link in the chain that led to a full scale global economic meltdown. The sequence of events is alarmingly similar to the 1930s – including the collapse of the global banking systems. In the face of decades of free market fundamentalism, governments, most notably in the US, were unwilling to take action against the collapse.

Krugman argues the problem is a return of an economy in which demand is simply not sufficient to employ supply. His op-ed today lays out the case with worrying bluntness:

The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.

[Snip]

Milton Friedman, in particular, persuaded many economists that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity, which would have prevented a sharp fall in the money supply. Ben Bernanke, the Federal Reserve chairman, famously apologized to Friedman on his institution’s behalf: “You’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”

It turns out, however, that preventing depressions isn’t that easy after all. Under Mr. Bernanke’s leadership, the Fed has been supplying liquidity like an engine crew trying to put out a five-alarm fire, and the money supply has been rising rapidly. Yet credit remains scarce, and the economy is still in free fall.

What we’re seeing right is alarmingly familiar – deflation, frozen credit, collapsing demand, rising unemployment and governments unable to do a damn thing to stem the tide. Keynes was right and the various objections we’re already hearing from Republicans are old hat – tax cuts sound nice but they won’t work. American consumers, by and large, can’t spend because we’ve maxed out our credit. If you send us government checks, most of us will pay down existing debt or save, actions which make sense at the individual level but that are ultimately unhelpful in larger scope of things.

This is a problem with which Keynes was familiar: giving money away, he pointed out, tends to be met with fewer objections than plans for public investment “which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” What gets lost in such discussions is the key argument for economic stimulus — namely, that under current conditions, a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle, and put both to work producing something useful.

Republicans in Congress are going to do everything they can to block anything that looks like a helpful stimulus plan. They’ll advocate for tax cuts because that’s all they know. We tried cutting taxes and it doesn’t work. It sounds nice and it’s easy and it doesn’t deliver gas to the economic engine. For now, the problem is simple: The economy needs a jolt and it will get it from well designed stimulus spending.

David Sirota sums up the problem:

The Wall Street Journal’s subheadline suggests what’s really going on with Obama’s tax cut move: It’s not pragmatic policy, it’s political pandering “aimed at winning GOP support,” and such pandering isn’t even politically “pragmatic” because lots of Republican votes aren’t even needed. After all, Democrats’ vast congressional majorities, Obama’s election mandate and the economic crisis should guarantee passage of whatever economic rescue package Democrats push. I mean, c’mon – are we really expected to believe that under these circumstances, a new president can’t use pressure to get 3 or 4 Republican senators to back a robustly progressive spending package and that instead, he has to substantially weaken that package? Puh-leeeze.

So, then, why weaken good policy (ie. infrastructure spending) with bad policy in order to attract votes the new president shouldn’t need? That’s the enduring power of the right-wing’s tax frame.

For 30+ years, the conservative movement has insisted that tax cuts are always better economic policy than public spending. And despite the fact that such rigid ideology has proven bankrupt over and over and over again, it still confines American politics, as evidenced by a new Democratic president already appearing to embrace the right’s basic tax fallacies.

We actually don’t need a single Republican vote in the House and we actually only need two in the Senate. I’m not a member of Congress and so I must not understand it, but the idea that we need to placate Republicans is absurd. I’d send them a simple message: The DSCC is raising $10 million to fund your opponent in your next election. Vote against this package and we’ll spend it in your race and you’ll be out of a job. The actual numbers, however, should be enough to convince the last few sane Republicans in the Senate: