We all know that Krugman has been saying “I told you so” ever since the Obama stimulus package didn’t usher in happy times. However, the naive outsider might get the sense that Krugman disagreed with the actual analysis conducted by Romer-Bernstein (with their infamous chart projected unemployment with and without the stimulus). Yet as I’m going to point out in tonight’s final lecture in the Mises Academy class, things are a lot more nuanced.
First of all, when the Romer-Bernstein projection came out, Krugman agreed that their multipliers were basically the same as his own. So they were basically in agreement about how much the Obama stimulus package would help.
The only disagreement, therefore, was in their projection of the baseline trajectory, i.e. what the economy would do in the absence of stimulus. Romer-Bernstein famously had unemployment without stimulus peaking at around 9 percent. Of this, Krugman said:
One more point: the estimate of what would happen to the economy in the absence of a stimulus plan seems kind of optimistic. The chart above has unemployment ex-stimulus peaking at 9 percent in the first quarter of 2010 and coming down through the year; the CBO estimates an average unemployment rate of 9 percent for 2010, so the Obama people are more optimistic than the CBO, and a lot more optimistic than I am.
OK, so maybe Krugman is a genius after all. If he thought, say, that the economy without stimulus would peak at 12 percent unemployment, then he correctly called everything. But in an op ed that same month, he had written:
Earlier this week, the Congressional Budget Office came out with its latest analysis of the budget and economic outlook. The budget office says that in the absence of a stimulus plan, the unemployment rate would rise above 9 percent by early 2010, and stay high for years to come.
Grim as this projection is, by the way, it’s actually optimistic compared with some independent forecasts. Mr. Obama himself has been saying that without a stimulus plan, the unemployment rate could go into double digits.
It’s true, he didn’t give a specific number, but I don’t think Krugman in January 2009 had any idea just how bad the economy would be, such that with the “help” of the (too weak) Obama stimulus, unemployment would exceed 10 percent at the peak.
In other words, when Krugman says, “I knew Romer was setting us up for failure, so don’t use her mistake as an argument against Keynesianism,” what Krugman means is, “Their own analysis told us this wasn’t going to be big enough.” Krugman explicitly agreed with the general estimate of the multipliers, and although he was more pessimistic than they were about the economy ex-stimulus, he didn’t give any evidence (that I have seen) that he knew just how bad the baseline would be.
Thus, Krugman’s own track record on this is entirely consistent with the Austrian view that the Obama stimulus made things worse, and that the Keynesians are just playing the non-falsifiable card of saying, “Well the baseline was worse than we realized.”