More Bad Pro-Stimulus Arguments
Monday July 13, 2009
More from Paul Krugman:
What Krugman is basically saying is that the last stimulus package raised real GDP but did nothing for employment. So in order to do something about employment we should have... another stimulus package!
A number of my non-economist friends have lately said to me things like, "no offense Mike, but economics doesn't make any sense and you guys seem to be making it up as you go along". It has become difficult to argue against that position, thanks to arguments like Krugman's.
Start with economics: last winter the economy was in acute crisis, with a replay of the Great Depression seeming all too possible. And there was a fairly strong policy response in the form of the Obama stimulus plan, even if that plan wasn't as strong as some of us thought it should have been.There is absolutely no evidence that stimulus had any net positive effect on GDP. None. There is also no coherent theory about why stimulus spending coming in 2010 (which most of it is) would have an effect in 2009. None. But for the same of argument, I will assume Krugman is right about the positive effect of stimulus spending.
At this point, however, the acute crisis has given way to a much more insidious threat. Most economic forecasters now expect gross domestic product to start growing soon, if it hasn't already. But all the signs point to a "jobless recovery": on average, forecasters surveyed by The Wall Street Journal believe that the unemployment rate will keep rising into next year, and that it will be as high at the end of 2010 as it is now...
To head off this outcome - and remember, this isn't what economic Cassandras are saying; it's the forecasting consensus - we'd need to get another round of fiscal stimulus under way very soon.
What Krugman is basically saying is that the last stimulus package raised real GDP but did nothing for employment. So in order to do something about employment we should have... another stimulus package!
A number of my non-economist friends have lately said to me things like, "no offense Mike, but economics doesn't make any sense and you guys seem to be making it up as you go along". It has become difficult to argue against that position, thanks to arguments like Krugman's.
Comments
“There is absolutely no evidence that stimulus had any net positive effect on GDP. None. There is also no coherent theory about why stimulus spending coming in 2010 (which most of it is) would have an effect in 2009. None.”
Well, unless people anticipated that the stimulus would help in the future, and make decisions based on that anticipation.
Good thing economics doesn’t assume that producers and consumers are forward-looking, then, or your argument would look really dumb.
(No. Really. How did you get this gig? And who are you to criticize Krugman, exactly?)
You’ve a lot of nerve to take on the Krug like that.
Who are you, exactly? Have you published in the economics literature? I thought not. A quick search on the internet suggests you’re nothing more than a wannabe pundit who couldn’t get a job at a network. Stop pretending to be an economist–you (and not Krugman) are giving the rest of us a bad name. Your ranting isn’t helping anything except your own ego.
I find it interesting that the prior three commentors are charmingly unswayed by fact. Regardless of Krugman’s supposed “expertise”, the stimulus is still less than stimulating, and it doesn’t seem to be helping people’s expectations either.
Nice article.
My thought is that perhaps Krugman feels that the current stimulus package is too small (to say nothing of too slow.) That being the case, a second round of stimulus would effectively increase the quantity of the first stimulus package. My question is, given the fact that the lion’s share of the stimulus will come in 2010, how does Krugman know that the stimulus has been a failure at this early point in time? Perhaps he has made up his mind in advance?