Kitchen-sink fiscal policy needed says Krugman

WASHINGTON - Nobel Prize-winning economist Paul Krugman said the United States should have a "kitchen-sink strategy" that uses all fiscal and monetary policies possible to prevent the economy from sliding back into a recession.

"We are looking at what could be a very long siege here," Krugman said yesterday.

"We really are at a stage where we should have a kitchen-sink strategy. We should be throwing everything we can get at this."

At a time when European countries such as Germany are calling for austerity measures to rein in budget deficits, Krugman is calling for more stimulus to prevent a repeat in the US of Japan's decade of economic malaise in the 1990s.

"The most effective things you can do, in terms of actual bang for the buck, is actually having the federal Government go out and hire people," he said.

"We are deep in the hole here, and you need to be unconventional to get out of it."

He said too many policy makers and commentators are overly concerned that the ballooning US deficit would set off a crisis of confidence similar to Europe's sovereign debt crisis.

Krugman said he was concerned US policy makers would be unable to agree to short-term stimulus for the economy and long-term measures to curtail the deficit.

"I worry about the politics," he said. "I worry about our ability to get a consensus to do the pretty straight-forward things we need to do to balance our budget in the long run."

The projected US budget gap in 10 years can be brought under control with a "combination of modest tax increases and reasonable spending cuts", particularly on health care, Krugman said.

"We are, I think, sliding into a situation where we're likely to see several bad years ahead," Krugman said.

"Given what I see in the political process, the odds are against us avoiding a really prolonged bad period."

- BLOOMBERG