I have never said, “Paul Krugman thinks it would be good for the authorities to fake an alien invasion, ha ha what an idiot.” I knew from Day One that he was trying to be cheeky and provocative, and was merely saying that such a policy would be better than the status quo. Hence, if you can “see” the truth of his thought experiment, then you should all the more so embrace government deficit spending on things that are actually useful, like bridges and shelters for kittens.
Yet even though I have been trying to be fair to Krugman on this point, in the last post some commenters led me to believe that they really didn’t understand just how far some Keynesians have pushed this idea that completely useless spending is better than nothing. So let’s let Krugman explain it himself:
[UPDATE: I originally threw in Krugman’s clip on Bill Maher, but realized afterwards that he was being slippery. In the original version above, Krugman is clearly saying that totally useless government military expenditures will be good for the economy, relative to doing nothing. Yet in the Bill Maher account, Krugman makes it sound as if he has been calling for high speed rail and genuinely useful things. Now maybe the difference is that he’s “kidding” in the CNN appearance, but by Bill Maher it has morphed into his “serious” proposal. Who knows. In any event, in the original CNN appearance, he is clearly saying totally useless spending will boost the economy; the interviewer is right when he asks isn’t this what Keynes himself thought.]
So Wieland isn’t putting words in the Keynesians’ mouths. Their position really does entail that supply disruptions–like an oil shock or even an earthquake–should boost output, if they occur during a liquidity trap. (That doesn’t mean it will increase wealth on net.)
Look, one of the papers Wieland cites–to motivate his empirical exploration–is Eggertsson and Krugman (2011). From that paper, I quickly found the following paragraph:
[T]he “paradox of toil,” first identified by Eggertsson (2010b)…appearing here in a starker, simpler form than in the original exposition, where it depended on expectational effects. Suppose that aggregate supply shifts out, for whatever reason – a rise in willingness to work, a change in tax rates inducing more work effort, a rise in productivity, whatever. As shown in Figure 2, this shifts the aggregate supply curve AS to the right, which would ordinarily translate into higher actual output. But the rise in aggregate supply leads to a fall in prices – and in the face of a backward-sloping AD curve, this price decline is contractionary via the Fisher effect. So more willingness and/or ability to work ends up reducing the amount of work being done.
I have other things to do with my life than to continually explain, “Krugman really did say that,” so I will leave it to readers to see if they can find Krugman saying the inverse to the above–that less willingness and/or ability to work ends up increasing the amount of work being done. But I hope I’ve given enough so that the fair reader can see this isn’t a strawman; Krugman has been advancing this stuff for years.