Krugman: Fiscal stimulus not enough

Bloomberg

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"The fiscal stimulus so far is clearly not enough," Krugman, an economics professor at Princeton University in New Jersey, said yesterday at a conference in Abu Dhabi. It is "only enough to mitigate the slump not induce recovery."

The U.S. economy plunged at a 6.1 percent annual pace in the first quarter, after a similar drop the previous three months. The government has pledged almost $1.5 trillion to reverse the slump. President Barack Obama’s $787 billion stimulus plan, which includes tax cuts and more cash for infrastructure projects, follows a $700 billion rescue package approved during the Bush administration.

The International Monetary Fund forecasts that the U.S. economy will shrink 2.8 percent this year and remain stagnant in 2010. Recovery will take longer than normal because the slump was precipitated by a worldwide financial crisis, the IMF says.

"There’s a real reason to doubt we have the tools" for a fast recovery, said Krugman. "We may have passed the worst but there’s a big difference between stabilizing and making up the lost ground."The IMF last month forecast that the global economy will contract 1.3 percent this year, the worst slowdown since the Great Depression. Governments around the world have announced spending packages to soften the impact of the crisis. The Group of 20 industrialized economies are spending more than $2 trillion, according to Bloomberg data.