A few days ago I began to doubt myself and said that after my two Krugman pieces ran this week in different outlets (still forthcoming), I would move on to greener pastures. I had become weary of pointing out every time Krugman pulled a rhetorical sleight of hand (often while yelling at what a bunch of jerks his critics were, while doing it).
But then “Dan” in the comments reminded me that with great recall comes great responsibility. Indeed, I have been reading Krugman faithfully lo these several years, and it is up to me to put a shoulder up against his forward rush. If not me, who?
Recall the debate we’ve all been having in the last few weeks over European austerity. Krugman et al. have been claiming that other governments tried fiscal austerity, and it blew up in their faces; clearly Keynesianism wins again, with flying colors. Boy oh boy, how much empirical evidence will these right-wing blowhards ignore in their quest to hurt poor people?
But then the Keynesians got some pushback. Veronique de Rugy, for example, produced a chart showing total nominal government expenditures for the past decade or so, and in all of the countries except Greece, spending in 2011 was higher than it had been in 2008. (It’s not in de Rugy’s chart, but Irish government spending in 2011 is about the same as it was in 2008, I get from eyeballing a different chart.) In France and the UK, spending had never gone down, in any year. (Recently it tapered off in the UK.)
So how did Krugman respond? Like this:
…some people who should know better are conceding the point that maybe there haven’t been big spending cuts. Yes, there have.
For the fact is that you can’t just look at spending levels to ask what is happening to spending programs. Here in the United States spending on unemployment insurance and food stamps has risen sharply, not because the welfare state has expanded, but because a lot more people are unemployed and poor. Similar effects are at work in European countries, which have stronger safety nets than we do. Also, some spending represents banking bailouts, not exactly what people have in mind when they talk about big government. [Bold added.]
Now if you go read the full post, and especially if you’ve been faithfully reading Krugman’s commentary on fiscal policy for the last year or two, it is crystal clear that he is basing the efficacy of Keynesianism on government consumption and investment spending. That’s why, when looking at Sweden, Krugman produced a chart comparing government C&I spending in the US versus Sweden, rather than looking at total government spending. Krugman is quite clearly arguing that (1) countries like the UK and Ireland are hurting now because (2) their governments cut back on C&I spending, and that is the relevant criterion, not transfer spending or bank bailouts.
Now I have been waiting for Russ Roberts or someone like him to pull out the trump card, but alas they haven’t yet. (Maybe they just like me to feel needed?) Anyway, here is Krugman in a NYT op ed from August 9, 2009. It’s going to be a long quote but I promise it is worth every clause:
So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.
Just to be clear: the economic situation remains terrible [and Krugman lists the problems with the employment situation–RPM]…
For all that, however, the latest flurry of economic reports suggests that the economy has backed up several paces from the edge of the abyss.
So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.
Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.
All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits — which are a bad thing in normal times — are actually a good thing right now.
In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.
The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.
Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall. [Bold added.]
So notice some interesting things about the above:
(1) First and most obvious, when the argument went his way, Krugman was more than happy to point to automatic stabilizers as being crucial in a discussion of the efficacy of Keynesian policy.
(2) Krugman next listed the bank bailouts as part of the broader package of “Big Government” that rescued the economy. So when he said a couple weeks ago in reference to the Irish bailout “not exactly what people have in mind when they talk about big government,” he must not have included himself in the category of “people.” (See? Krugman must be a shape-shifting lizard after all.)
(3) Krugman said of the Obama stimulus package that it was “probably least” important of the three main reasons for why Big Government averted the second Great Depression. So again, when it looks like automatic stabilizers and bank bailouts go hand in hand with an improved economy, Krugman is happy to say they are the primary things to focus on. But when automatic stabilizers and bank bailouts go hand in hand with a double-dipping economy, now Krugman says they aren’t what people mean by “big government,” and the thing to focus on is true stimulus spending.
Finally: for those who wonder why “my side” obsesses over Krugman so much, it’s because of stunts like this. He pulls this kind of thing a lot. He takes both sides of an issue, either one of which is defensible by itself, but then impugns the motives (“people who should know better”) of the people who happen to be on the other side, that day of the week.