And I was going to mention Romer too when I started reading the post. I link to an article by J.R. Vernon that criticizes precisely this data choice by Romer (her fantastic article on what ended the Great Depression), so this isn’t even a 1930s thing.

I’m still with J.R. Vernon (and I guess LK too) that it’s not the best thing to look at because:

1. MPCs for private and public are different meaning a 0% budget deficit with increase in spending is going to have a multiplier effect, just a smaller one than an increase in spending financed by a deficit, and

2. Tax revenue is a function of income. Recessions mean less income. You can have spiking deficits in a recession with absolutely no change in demand.

Deficits aren’t meaningless obviously – we should look at them. They tell you about the government’s demand for loanable funds. That’s the very straightforward reason why Bob is right that people have been looking at it for decades. I’d just look at more than that (or at least move forward having a good sense of what is driving your deficit numbers).

Interesting point, but it is not clear to me in the 2009 quote that Paul Krugman is writing that only the ‘stimulus’ can bring about a recovery.

In that quote he notes how important the automatic stabilizers and bank bailouts were in were in preventing a replay of the 1930′s, and then follows this with;

“Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy”

It’s not clear to me that he is writing that only the stimulus is required to “pump up” the economy from where it is now thanks to stabilizers and bailouts. One can fairly read that to mean that he is including it along with stabilizers and bailouts as a significant but less important means of stimulating the economy.

I also think Dan Hewitt’s comment below and comments in previous threads are important here. As he notes, Dr. Krugman has previously written that taking money from people who are more well off and giving it to people who are less well off (e.g. through automatic stabilizers) will help stimulate the economy.

I’ll start: I’m sorry for antagonizing you, and I’ll try to be more open to what you’re saying.

So what do you say? For the sake of advancing the discussion, and no longer hijacking Murphy’s blog with personal vendettas?

Is that you Richie or is it the other [the adult male of the domestic MF edited by PRM]-sucker?

This is about LK’s claim that “serious” Keynesians don’t look at deficits as a percentage of GDP when determining the extent of government stimulus, and Murphy showing that Romer, who is a “serious” Keynesian, looks at deficits as a percentage of GDP when determining the extent of government stimulus.

If you want to use private sector cash balance quantities to determine the extent of government stimulus, then so what, it has nothing to do with the substance of this post.