Arrrrgggh

Paul Krugman is talking about the possible damnation of deflation on the horizon:

If you ask me, the really scary report today wasn’t the GDP release, although that was plenty bad, but the employment cost index, which shows wage gains falling off fast. Wages aren’t declining, yet (although stories of wage cuts in particular firms are, I believe, more common than at any time since the 1930s); and we don’t have actual deflation in consumer prices, yet; but we’re moving in that direction. And we’re only in the early stages of a slump that, in the words of the CBO director,

absent a change in fiscal policy, CBO projects that the shortfall in the nation’s output relative to potential levels will be the largest– in duration and depth– since the Depression of the 1930s.

This really should be the key point in the stimulus debate. Yes, the effects of fiscal policy are uncertain; yes, running up large debts is risky; but doing nothing is even riskier, because there’s a high probability that if we don’t act strongly deflation will get embedded in the economy. We may be damned if we do, but we’ll almost surely be damnified if we don’t.

I didn’t used to get worried when I read stuff like this because I figured that after Inauguration Day, we’d fix it enough to avoid calamity, if not get the stimulus/recovery package the country needs.  But it looks like the GOP is willing to do nothing unless they get their Tax Cut Ponies (lame in three legs) and cuts in investment that actually has a chance of getting us going again.  I am starting to worry.

I hope the Dems don’t give away the store in the run-up to this vote to avoid a GOP filibuster.   And if the GOP do filibuster the stimulus bill on Monday, I hope the Dems stand firm and launch a PR offensive that will make Sherman look like a moderate.  Of course, if history is any indication, they’ll simply capitulate in advance and weaken the bill beyond it’s already weakened state. 

Give me strength.