Aww, I thought I had him. The thing that’s been bothering me about Krugman’s post-9/11 remarks (which may or may not violate Bastiat’s Broken Window Fallacy, depending on whether or not you liked Paul Krugman going into the column), is that I thought they were evidence of “vulgar Keynesianism” as defined by Krugman himself around that time. So here’s the money quotation from the post-9/11 piece:
It seems almost in bad taste to talk about dollars and cents after an act of mass murder. Nonetheless, we must ask about the economic aftershocks from Tuesday’s horror.
These aftershocks need not be major. Ghastly as it may seem to say this, the terror attack — like the original day of infamy, which brought an end to the Great Depression — could even do some economic good.
Let me pause for a second: Those Krugmanites out there who are shocked, shocked that libertarians could possibly believe that Krugman thinks disasters are good for the economy…are you starting to see why?
Anyway, the thing that wasn’t sitting well with me, concerning the above quotation, is that the economy wasn’t in a liquidity trap at that point. So the way to “fix” it, on Krugman’s terms, wasn’t an exogenous boost in spending, but the Fed lowering of interest rates. I know this because he wrote less than a year earlier, right after Bush/Cheney were declared the winners of the election:
Mr. Cheney suggested — with more confidence in his forecast than any professional economist I know — that we face a looming recession. And this, he argued, means that we should press ahead with that $1.6 trillion tax cut.
Why is this bad news? Let me count the ways.
First, on their face Mr. Cheney’s remarks were those of a vulgar Keynesian — a believer in the now- discredited doctrine that taxes and spending should be routinely twiddled in an attempt to “fine-tune” the economy. Decades of experience shows that this is a bad idea, that when governments try to fight garden-variety recessions by cutting taxes or increasing spending they almost always get it wrong. By the time Congress has finished negotiating who gets what, and puts the new law into effect, the recession is usually past — and the fiscal stimulus arrives just when it is least needed.
Fiscal pump-priming has its place; it’s appropriate in the face of deep and persistent slumps. But otherwise we should make budgets for the long run, and let the Fed deal with short-run problems by adjusting interest rates. It’s disturbing that Mr. Cheney seems unaware of this basic policy rule.
So, I thought I had him really good: “Krugman is OK with pump-priming when it comes from a terrorist attack, but not when it comes from tax cuts!!”
Alas, I think he can wriggle out of it. He is also on record from the same period saying that Greenspan wasn’t cutting interest rates quickly enough. And, as the “vulgar Keynesian” quote says, he was focusing on the delay of the economy getting the actual stimulus, not so much about contrasting fiscal vs. monetary on their own terms (the way a Scott Sumner or Bill Woolsey would).
All in all, I let Krugman go. This time. His views are horrendous, but (in this episode) are not contradictory.