01.05.2011 Policy Points

Economic Next Steps

Writing in The New York Review of Books, Paul Krugman and Robin Wells weigh the role the economic conditions played in the recent elections and consider how those conditions could be improved.

And there are steps that the White House could take without congressional approval. Democrats could pressure the administration to fix the inexcusable mess at the HAMP (mortgage modification) program—a program whose Kafkaesque complexity has in many cases made matters so bad for home owners that it has triggered the foreclosures it was supposed to avoid. In addition, mortgage relief would benefit the wider economy. Furthermore, the scope of mortgage relief could be made much wider if Fannie Mae and Freddie Mac were used to guarantee mortgage refinancing. Other proposals go even further: for example, that Fannie and Freddie engineer reductions in mortgage principals. All of this could be done, conceivably, by executive order.

Democrats could also demand that the administration—specifically, the Treasury—act on the problem of China’s currency manipulation, which keeps the remnimbi artificially cheap compared to the dollar. While China’s actions are not the main factor in our economic woes, they are a factor. China’s unprecedented level of currency manipulation siphons off demand for US products that is much needed in our depressed economy, and shifts our imports away from other countries such as Mexico that are much more likely to reciprocate with purchases of American goods. The obvious American response is to threaten, and if necessary actually impose, countervailing duties on Chinese exports—a step that is backed even by strong advocates of free trade …

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