Reader Contest! Who Can Predict Krugman’s Response?
This is pretty exciting, as far as these things go. Usually the Wall Street Journal doesn’t allow an op ed writer to respond to somebody else’s op ed, except in the most indirect ways. But Alan Reynolds’ piece today opens as if it’s one of my Mises.org Daily Articles:
‘So it seems that we aren’t going to have a second Great Depression after all,” wrote New York Times columnist Paul Krugman last week. “What saved us? The answer, basically, is Big Government. . . . [W]e appear to have averted the worst: utter catastrophe no longer seems likely. And Big Government, run by people who understand its virtues, is the reason why.”
This is certainly a novel theory of the business cycle. To be taken seriously, however, any such explanation of recessions and recoveries must be tested against the facts.
Well, I actually take that back. My articles tell you what the punchline is, within the first two paragraphs.
Anyway, Reynolds does a good job explaining that there is basically no empirical support for the claim that deficit spending avoids (or cushions) recessions, or for the opposite claim that the Great Depression was caused by inadequate spending. My favorite part:
Proponents of Big Government can’t say we avoided the next Great Depression due to hypothetical stimulus money that is mostly unspent. So they argue it’s more important that the federal government merely continued spending and didn’t “slash” spending as in the early 1930s. But the federal government didn’t slash spending in the early ’30s. Federal spending rose by 6.2% in 1930, 7.7% in 1931 and 30.2% in 1932. Since prices were falling, real increases in federal spending were huge during the Hoover years.
As of 10:30 PM EST Friday night, Krugman hadn’t responded on his blog to Reynolds.
So let’s have another Whoever can come up with the closest approximation to Krugman’s response (and it must be time-stamped before his answer, of course) will get a free copy of the book that made Reynolds’ case months ago.
Let me take up the two most obvious answers: (1) Krugman ignores Reynolds. (2) Krugman brings up the recovery with FDR’s inauguration (and slightly higher deficit spending), and then the collapse when FDR tried to rein in the deficit. I.e. Krugman might play the Romer card, demonstrating that he really needs to read the Mises Daily.
I’m actually not predicting that Krugman will do either of the above. In a clear violation of rational expectations, Krugman’s responses continue to surprise me. For example, when Barro wrote a WSJ article saying that the multiplier was very low during World War II, Krugman came back and basically said, “What are you talking about? No Keynesian ever claimed that wartime deficit spending got us out of the Great Depression.” Could anyone have predicted that?
