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Title: The Strange Death of Fiscal Policy
Source:
NY Times
URL Source: http://krugman.blogs.nytimes.com/20 ... trange-death-of-fiscal-policy/
Published: Nov 3, 2010
Author: Paul Krugman
Post Date: 2010-11-03 21:41:14 by go65
Keywords: None
Views: 1446
Comments: 8
One clear result of the midterms is that we won’t have anything like a further round of stimulus. And this, in turn, means that the narrative all the Very Serious People will tell is that fiscal policy was tried, it failed, and that’s that. But the real facts don’t at all support the conventional wisdom. Actually, let me focus on an international comparison. You often hear the US experience contrasted with Germany: America, we’re told, went for Keynesian policies, while Germany chose austerity, and Germany did better. But as far as GDP is concerned, Germany did not, in fact, do better: Yes, Germany did better on employment — but this reflects policies that American conservatives surely don’t support, including employment subsidies, strong unions, and rules making it difficult to fire workers. And what may be even more surprising: if we look at actual government purchases of goods and services, as opposed to transfer payments (many of them just payments from the federal government to states), Germany was more Keynesian than the United States: So, it’s an amazing thing: Obama and company have managed to convince people that big government failed, without actually delivering big government. Update: Just to be clear, I’m not saying that the Germans were big Keynesians; the point is that neither of us were.
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#5. To: go65 (#0)
(Edited)
What Keynesians like Krugman aren't smart enough to realize is that once you give politicians the power to run huge deficits, they will inevitability use it to create big transfer payments to buy votes. The big deficits won't just appear in an economic downturn, they will be a structural part of the environment until the system collapses under a mountain of debt. I would have supported a serious infrastructure bill to rebuild and expand our roads, shipping ports, airports, railways, etc. That would have taken unemployed people from the construction industry and immediately put them back to work. More importantly, the infrastructure is necessary to support future economic growth. That's not what we got. What the Democrats did instead is dramatically increase federal government debt to bailout irresponsible state governments so that paper pushing bureaucrats could keep their jobs for a year. Government spending didn't stimulate anything, it just delayed the inevitable. Now many of these same bureaucrats are being laid off. It was a bill to buy votes for Democrats. It had nothing to do with fixing anything. It didn't fix anything. This is why you can't give the politicians the power to run large deficits. They are untrustworthy.
You nailed it - the flip side of Keynesian economics is that during expansion you are supposed to run a surplus and pay down debt. That went out the window when Bush and crew took over in 2001 and decided to blow the surplus on massive new spending and tax cuts while launching two wars without paying for them. We would have been in far better shape to deal with the recent economic crisis if we had reduced our debt between 2001-2008 instead of massively adding to it. Same here - I agree with Krugman and Romer that Obama made a huge mistake in not putting far more of the stimulus into infrastructure. I'm not upset with the aid to the states, the idea was that if the rest of the stimulus bill helped grow the economy, then the states could avoid big layoffs. The big flaw in the stimulus, IMHO, was using nearly a third of it on useless tax cuts in an effort to buy GOP votes.
All it does it reward bad behavior and postpone the inevitable day of reckoning. Speaking of this, it's going to be fun to watch Jerry Brown dramatically reduce bureaucrat pensions in California. He's going to do it. The burecrat union leaders will scream bloody murder.
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#6. To: jwpegler (#5)
What Keynesians like Krugman aren't smart enough to realize is that once you give politicians the power to run huge deficits, they will inevitability use it to create big transfer payments to buy votes. The big deficits won't just appear in an economic downturn, they will be a structural part of the environment until the system collapses under a mountain of debt.
I would have supported a serious infrastructure bill to rebuild and expand our roads, shipping ports, airports, railways, etc. That would have taken unemployed people from the construction industry and immediately put them back to work. More importantly, the infrastructure is necessary to support future economic growth.
That's not what we got. What the Democrats did instead is dramatically increase federal government debt to bailout irresponsible state governments so that paper pushing bureaucrats could keep their jobs for a year. Government spending didn't stimulate anything, it just delayed the inevitable. Now many of these same bureaucrats are being laid off. It was a bill to buy votes for Democrats. It had nothing to do with fixing anything. It didn't fix anything.
#7. To: go65 (#6)
I'm not upset with the aid to the states
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