Dean Baker justly complains that I have misread him here: "Politics Is Undermining Our Economy." He does not think that it would have been economically impossible to maintain near-full employment after the collapse of the housing bubble, just that it was politically difficult.
When he writes:
The Right Prescription for an Ailing Economy: As much as economists like to pretend to be sorcerers, they have no easy way to replace $1 trillion in annual demand. The Obama Administration's 2009 stimulus package went perhaps one-third of the way, but it was nowhere near large enough...
Dean Baker | The Bursting of the Housing Bubble and the Coming Recession: If housing construction and sales fall back to trend levels, it would mean a loss of more than 2 million jobs. The decline in consumption that will result because people can no longer borrow against their homes will have an even more dramatic impact on the economy. The financial system will also be shaken by an unprecedented wave of mortgage defaults. Unfortunately, at this point there is no obvious way to avoid this scenario...
Beating Up On Brad DeLong | TPMCafe: There is nothing in our economist's bag of tricks that gives us an easy mechanism for replacing 9 percent of GDP quickly, which leaves me wondering what the reality grasping Mr. DeLong been smoking?... Exactly what mechanism do we have in the private economy for replacing $1.2 trillion in private demand in a short period of time?
he is not throwing up his hands in despair, but rather calling for a boost to total government purchases on the order of four times as great as the boost to federal government purchases in the Recovery Act.