In Which I Am Won Over By Paul Krugman

I dunno. I see another ego here that is just as swollen, but without a Nobel Prize to justify the swelling.

Was the Keynesian solution politically impractical? Or were Sumners and Geithner totally underestimating the severity of the crisis? (uh, the latter! The Dems could’ve wrangled for it). On the other hand, instead of stimulus spending, why not get China to stop propping up the dollar? Well, yeah, that’s even more politically unrealistic than stimulus spending. etc.

Of course, that works both ways.

(I am simply acknowledging political reality, not advocating any position.)

Because in doing so they inhibited the adoption of a program that was politically tolerable and of sufficient scale to solve the problem.

“Urbanistas’ is simple red-baiting. It’s a play on sandinistas, and it means that white upscale city-dwellers are not real Americans – they’re communists. Anyone who says that city dwellers are un-American is not worth arguing with.

And of course, it was Bush who bailed out the banks. Obama saved the auto industry, not to mention the jobs of teachers and policemen in every state. But hey, if you can call the president a commie, why do need facts?

What? That’s not right. That’s not even coherent.

But, in answer to your question: we would have had a stimulus that wasn’t heavily weighted to tax cuts (which are well known to be much less stimulative than other kinds of spending), one that was much bigger (since it was well known to be inadequate at the time it was implemented), and one that wasn’t viciously opposed at every turn.

We would have had more transfers to states that were suffering because they are not allowed to run deficits.

We would have had more rescues of the sort that the auto industry enjoyed, including direct low-interest small business loans that would have allowed many small businesses to continue operating when banks were uninterested in loaning anyone any money.

Shall I continue?

Salem: Uhhh… what?

The monetary stimulus was everything that Scott Sumner could have dreamed of and more. Indeed, we gave literally billions of dollars with no strings attached to banks and anything that looked like a bank (interest-free loans, which they used to buy short term treasury bills instead of, say, using the money as intended.)

And the recession was crushing and the recovery is so slow that there is no way we will be anywhere near full employment by the time the next recession hits us.

If anyone has had a stake driven through his heart, it’s Scott Sumner.

But, of course, as Mitzu said, the countries that performed the fiscal stimulus, inadequate as it was, are recovering. The countries that did not, well, they’re not. It’s odd how your post ignores this inconvenient little fact when it undermines your entire premise.

Salem’s position is not internally consistent. One cannot consistently update both in favor of thinking (with PK) that there wasn’t enough stimulus, with the implicit corollary that more would have been better, and (with John Cochrane) that stimulus is ineffective, with the implicit corollary that what was done shouldn’t have been and more would not have helped. These two aren’t diffuse; they are logically opposed.

Those trying to bait me into an argument about the effectiveness of fiscal stimulus, monetary stimulus, NGDP targeting, etc, are missing the point. I’m not espousing any particular policy position.

@Jonathan:

Of course you can update in favour of logically opposed positions.

Suppose yesterday I thought with 98% certainty (A) that if I am polite to the doorman, I will get into the club, (B) 1% certainty I will get into the club if and only if I bribe the doorman, (C) 1% certainty that I can never get into the club no matter what I do. Then I am polite to the doorman, but he doesn’t let me in. (A) being refuted, I update in favour of both (B) and (C) even though they are logically inconsistent. Now I believe (B) with 60% certainty and (C) with 40% certainty (say). My beliefs have become more diffuse. Before I was pretty confident what to do. Now I am unsure.

This too ought to be the lesson of this crisis – be less sure. Instead, everyone on all sides, no matter their prior beliefs, claims that events vindicated them. Everyone is more sure! It’s ridiculous.

Exactly.

Curt,
Llama’s question was specifically questioning what Krugman might have preferred from fiscal policy as opposed to austerity i.e., a reduction in the rate of growth of real government expenditures. So a discussion of monetary policy (which Krugman supports using but is skeptical of its potential in the current environment) is an inappropriate response.

“Of the four policy levers, promoting the state was intolerable. There were plenty of alternatives.”
I can only assume that you expanded this thought else where. But I can’t comment on it because I don’t know what you are referring to.

“But pushing the state venue alone was the reason for failure. It’s politically intolerable.”
We’ll never know what was tolerable because Obama and his advisers negotiated with themselves prior to making a proposal.

“And the right just assumes Krugman is dishonest and using the recession as an opportunity to expand the state.”
I find it interesting that Krugman has shown that Republican response has been to try to exploit this opportunity to decrease the state without regard to possible effects to the recovery in the USA by suggesting the more of the same policies that they have been advocating for thirty years.

You are right, however, that too much of the citizenry lacks empathy or awareness to prevent certain bad policy and is only convinced when the ill effects bite them personally.

Curt, you basically say that Krugman is right, but you don’t like his ideas politically, so he’s wrong because it is “politically unfeasible”. That’s a pretty self-serving argument, and quite vacuous from an economical point of view.

Krugman’s political point of view on the stimulus was that, by making it barely sufficient to stop the bleeding, but insufficient to start a real recovery, it would give a false impression that it failed, an impression that some people would exploit for political reasons, like Salem on this thread for instance. I think history proved him right.

If there is an opposition to “government expansion” in the US, it doesn’t mean that people are really opposed to it. It’s mostly a matter of marketing at this point, Republicans have managed to tar the “government” brand. But when people are polled on the details, they tend to answer even to the left of Democrats. They seem to actually like government programs like Social Security, Medicare and the rest. Americans need political education in general, I mean, many of those who receive SS checks say that they don’t benefit from government programs. It’s absurd.

Furthermore, the policies that Krugman favored wouldn’t have grown the government. Yes, government spending would have increased for a few years, but it would have returned to the trend after a while. For example, Krugman mostly asked for infrastructure spending, but infrastructure spending generally is paid to private construction and engineering companies to do the job. It’s rarely done internally, so it doesn’t result in more government workers or more agencies. Your argument that it would have expanded the government is thus wrong.

Sure, there are other ways of doing stimulus, but according to experts, they are much less efficient. Which means that, to achieve the same result, you would need much higher deficits than otherwise. This would mean a higher debt level, and thus higher taxes in the future to support this debt level.

BTW, there is an example of how Krugman was right about infrastructure spending. Go get statistics on the Canadian province of Québec. After an overpass collapsed a few years back, the government started investing a lot in infrastructure, just in time for the recession. The result? Québec’s unemployment rate, that was for decades higher than the Canadian average, became lower for a while. There was almost no recession in Québec, even in 2009, the GDP grew 0,1%, while it was regressing by 4,6% in Canada.