Divided We Fail

http://www.nytimes.com/2010/10/29/opinion/29krugman.html?_r=1&WT.mc_id=OP-SM-E-FB-SM-LIN-DWF-102910-NYT-NA&WT.mc_ev=click

By PAUL KRUGMAN
Published: October 28, 2010

Barring a huge upset, Republicans will take control of at least one house of Congress next week. How worried should we be by that prospect?

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This is going to be terrible. In fact, future historians will probably look back at the 2010 election as a catastrophe for America, one that condemned the nation to years of political chaos and economic weakness.

Start with the politics.

In the late-1990s, Republicans and Democrats were able to work together on some issues. President Obama seems to believe that the same thing can happen again today. In a recent interview with National Journal, he sounded a conciliatory note, saying that Democrats need to have an “appropriate sense of humility,” and that he would “spend more time building consensus.” Good luck with that.

After all, that era of partial cooperation in the 1990s came only after Republicans had tried all-out confrontation, actually shutting down the federal government in an effort to force President Bill Clinton to give in to their demands for big cuts in Medicare.

Now, the government shutdown ended up hurting Republicans politically, and some observers seem to assume that memories of that experience will deter the G.O.P. from being too confrontational this time around. But the lesson current Republicans seem to have drawn from 1995 isn’t that they were too confrontational, it’s that they weren’t confrontational enough.

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Beyond the politics, the crucial difference between the 1990s and now is the state of the economy.

When Republicans took control of Congress in 1994, the U.S. economy had strong fundamentals. Household debt was much lower than it is today. Business investment was surging, in large part thanks to the new opportunities created by information technology — opportunities that were much broader than the follies of the dot-com bubble.

In this favorable environment, economic management was mainly a matter of putting the brakes on the boom, so as to keep the economy from overheating and head off potential inflation. And this was a job the Federal Reserve could do on its own by raising interest rates, without any help from Congress.

Today’s situation is completely different. The economy, weighed down by the debt that households ran up during the Bush-era bubble, is in dire straits; deflation, not inflation, is the clear and present danger. And it’s not at all clear that the Fed has the tools to head off this danger. Right now we very much need active policies on the part of the federal government to get us out of our economic trap.

But we won’t get those policies if Republicans control the House. In fact, if they get their way, we’ll get the worst of both worlds: They’ll refuse to do anything to boost the economy now, claiming to be worried about the deficit, while simultaneously increasing long-run deficits with irresponsible tax cuts — cuts they have already announced won’t have to be offset with spending cuts.

So if the elections go as expected next week, here’s my advice: Be afraid. Be very afraid.

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