With IndyMac Bank recently failed and housing prices in free fall, it was clear that the economy was in bad shape. (Well, it was not clear to John McCain's economist who were calling the financial events a "mental recession.") But the worst was yet to come. Lehman Brothers, Fannie and Freddie, AIG, and 465 banks were still alive, and the unemployment rate was an enviable 5.8%.
In his July 2008 post, Krugman predicted hard times for the next President.
"It’s true that some prognosticators still expect a 'V-shaped' recovery in which the economy springs back rapidly from its slump. On this view, any day now it will be morning in America. But if the experience of the last 20 years is any guide, the prospect for the economy isn’t V-shaped, it’s L-ish: rather than springing back, we’ll have a prolonged period of flat or at best slowly improving performance...staying depressed well into 2010, if not beyond — plenty of time for the public to start blaming the new incumbent, and punish him in the midterm elections.
To avoid that fate, Mr. Obama — if he is indeed the next president — will have to move quickly and forcefully to address America’s economic discontent. That means another stimulus plan, bigger, better, and more sustained than the one Congress passed earlier this year. It also means passing longer-term measures to reduce economic anxiety — above all, universal health care.
If you ask me, there isn’t much suspense in this year’s election: barring some extraordinary mistakes, Mr. Obama will win. Assuming he wins, the real question is what he’ll make of his victory."
I'm tempted to ask, Mr. Krugman, any thoughts on interest rates?