Help me out here, Krugman sympathizers: For a while now he has been making two different arguments that seem in conflict.
On the one hand, he has been savaging that “austerians” for pointing to historical examples of an expansionary episode of government budget cutting, by saying that all of these cases are inapplicable to our times. For example just today he wrote:
Early last year, many people on both sides of the Atlantic seized on the idea that less is more — that cutting spending would actually help, not hinder, recovery. There was a paper by Alesina and Ardagna that seemed to provide evidence to that effect, and nothing succeeds like telling people what they want to hear.
Since then, the whole intellectual edifice has collapsed. The Alesina et al methodology turns out to be deeply flawed, which should have been obvious from the start (and was, to some of us.) The alleged cases of expansionary austerity have, without exception, turned out to be bad examples, either involving cuts when the economy was booming or situations in which sharp interest rate declines and/or currency depreciations were the actual sources of expansion.
Note that I put the important point in bold above. In a post yesterday, he said something very similar:
I have, in the past, used Sweden’s experience in the 1990s to illustrate the difficulties we face in recovering from a global financial crisis: Sweden recovered from crisis, but it did so only by devaluing its currency and moving from trade deficit to trade surplus, a route that’s not available to the world as a whole (unless we can find another planet to trade with).
OK so the point is clear: The Republicans who say the U.S. should cut its budget right now–and point to historical examples of countries doing just that and expanding their economies–are sleazy, because the world as a whole can’t depreciate its currency and boost exports to Mars.
Fine, fair enough.
But wait a second. When it comes to Krugman’s discussions of the euro, suddenly the rules change. Here’s Krugman from March 27 explaining why some countries are suffering under the euro:
I think Dean Baker and I are converging on deficits and independent currencies. He asserts that having your own currency makes a big difference — you can still end up like Zimbabwe, but not like Greece right now. I’m fine with that.
Specifically, the reason Greece (and Ireland, and Portugal, and to some extent Spain) are in so much trouble is that by adopting the euro they’ve left themselves with no good way out of the aftereffects of the pre-2008 bubble. To regain competitiveness, they need massive deflation; but that deflation, in addition to involving an extended period of very high unemployment, worsens the real burden of their outstanding debt. Countries that still have their own currencies don’t face the same problems.
So correct me if I’m wrong here, but it sounds like Krugman is saying to the PIGS (not PIIGS mind you) that if they just had their own currencies that they could depreciate, they’d be better off. But how? Are Martians only willing to import Guinness but not Michelob? (I don’t blame them if so.)
This is another great example of a Krugman Kontradiction. It’s not a literal contradiction. Rather, it’s that Krugman uses one set of rules to call his opponents awful names, and then changes the rules when he’s pushing his own policies. Scott Sumner has nailed Krugman on this type of thing several times (though I’m not going to dig up the links).