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Krugman: More Action Necessary to Avert ‘Lost Decade’

More economic pessimism from Paul Krugman,whose skeptical views have a growing following: The United States risks losing an entire decade of growth and enduring Japanese-style stagnation if it doesn’t move more aggressively to deal with ailing banks and to stimulate the economy.

Krugman made those remarks at a speech in China today. He’s previously warned that the United States could go the way of Japan — but he said that stagnation could last a decade is a particularly dire warning.

“We’re doing half-measures that help the economy limp along without fully recovering, and we’re having measures that help the banks survive without really thriving,” Krugman said.

“We’re doing what the Japanese did in the nineties,” he told a small group of reporters during a visit to Beijing.

And here’s more:

Krugman said he expected little or no employment growth this year or next in the United States, where the jobless rate in April hit a 25-year high of 8.9 percent.

“A second stimulus is becoming clearly urgent. They need a very, very strong stimulus,” said Krugman, a Princeton University professor and a New York Times columnist.

He said stress tests carried out on 19 leading U.S. banks had bought time for the administration of Barack Obama, but they had not answered the key question of whether the banks have enough capital to fulfill their key role in the economy.

“It’s clear the administration won’t take radical action to strengthen the banks any time soon,” he said. To have done so would have meant temporarily nationalizing Citigroup and, perhaps, Bank of America, he said.

Krugman’s comments are quickly spreading around the blogosphere. Not everyone shares the more optimistic views of Federal Reserve Chairman Ben Bernanke, who said last week that the economy could pull out of recession by the end of this year, though economic activity would continue to be subpar — and that’s one reason why the Nobel Prize-winner’s warnings continue to resonate.

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