At this point I have whiplash from reading Paul Krugman’s blog. I am swamped with stuff so I won’t document the below claims with links; perhaps I’ll come back and do it for posterity. In any event, for the last several years, Krugman has been complaining:
(1) Europe and the US are engaged in “unprecedented” fiscal austerity. The actual policies these people are implementing are insane. For some reason–perhaps to appease the “invisible bond vigilantes” by summoning the “confidence fairy”–policymakers think they need to bring deficits down “now, now, now,” not realizing that the time for budget tightening is down the road, after we’ve returned to full employment.
(2) What’s even more heartbreaking, is that there is no justification for any of this madness. Intro econ courses teach this stuff. Unfortunately, the Very Serious People (VSPs) have hijacked the debate, abetted by a few prominent economists who should know better: guys like John Cochrane and Casey Mulligan. Krugman has been lamenting that nobody listens to him. He, Brad DeLong, and the other people who have been just hitting it out of the park with their predictions, have zero influence on policy. They have been the Cassandras of the Great Recession.
(3) The CBO just announced that the deficit this year will be $200 billion lower than they thought back in February. This difference in forecast is due to $98 billion in lower total outlays–again, this fiscal year alone–and $105 billion in higher expected revenues. To repeat, this change in the CBO’s forecasts occurred from just February to May. At the same time, officially reported economic growth in the first quarter was 2.5%, which is tied for the 6th best out of the last 8 quarters. The official unemployment rate continues to steadily fall. The Fed is even considering pulling back QE3 because of the surprisingly strong job growth.
(4) Paul Krugman cites this as yet another moral and prediction victory on his part. He explains that cutting the deficit by 25% this year alone proves he has been right all along. Further, the deficit scolds are again shown to be fools. Fortunately, Krugman can explain to us the psychological motivation of these scoundrels. In Krugman’s words:
[T]hink about the personal career incentives of the professional deficit scolds. You’re Bowles/Simpson, with a lucrative and ego-satisfying business of going around the country delivering ominous talks about The Deficit; you’re an employee of one of the many Pete Peterson front groups; and now, all of a sudden, the deficit is receding, and you had nothing to do with it. It’s a disaster! [Emphasis original.]
So I’m really confused at this point. Apparently policymakers have been listening to Krugman all these years, as they slash spending and raise revenues to bring this year’s deficit down 25% in just a few months. And, the economy hasn’t hit an additional hiccup in the face of this unprecedented fiscal austerity, just like Krugman has been predicting.