Coyne: Facts confound economists' doomy predictions on U.S. economy
Another one of Hava-gafa-kasha's "favorites"...............
Last November, Paul Krugman met Larry Summers in Toronto for a public debate. The issue: whether America faced a "lost decade" of economic stagnation, much as Japan endured through the 1990s (not that the 2000s were any great shakes). It was a very weird debate.
Both the Nobel laureate economist and the former Treasury secretary agreed for much of the night: the American economy was dead in the water. Moreover, both were quite sure it would remain in that condition, absent another massive dose of fiscal stimulus, i.e. even larger deficits. They differed only in their estimation of whether the American political system could produce it.
At more or less exactly that moment, as we now know, the American economy was stirring to life. The weeks since then have been filled with news of one indicator after another flashing green: retail sales, manufacturing shipments, employment, GDP, the works. The Dow Jones this week touched 13,000 for the first time in four years, even in the shadow of a possible war in the Middle East or currency crisis in Europe. That's a gain of roughly 1,000 points since the lost decade debate.
Logically, you would think both Krugman and Summers would find this troubling. I don't think either man would deny the evidence that the economy is growing — even Krugman is no longer predicting a Third Depression (or is it the Fourth?). Yet you may search in vain for any acknowledgment that it has done so without the elixir of life they were so determined to prescribe.
Perhaps Krugman, at least, would claim that this was in response to previous doses of stimulus: that, far from disproving Keynesian theory, this was actually confirmation of it. Except in all of his previous writings Krugman was adamant that the stimulus had not been nearly enough — that whatever meagre stimulus might have been provided by $1.4-trillion federal deficits had been largely offset by cuts imposed at the state and local level.
Even if you did credit a surge in growth in late 2011 to an increase in spending two years before, that's an awfully long lag: about what you'd expect from the economy on its own steam. Even the most blinkered Keynesian does not argue that economies never recover without such intervention — only that they take too long. As Keynes famously and flippantly argued, "in the long run we are all dead."
So we can add America post-2008 to the long list of failed experiments in Keynesian demand management. If deficit spending were the fuel of economic recovery — remember that Keynes insisted it did not matter what the money was spent on, only that it was spent, or rather borrowed — then Greece and Italy ought by now to be rocketing into space. It has not had that effect for them, as it did not for Japan in the 1990s, or France in the 80s, or Britain in the 70s, or the U.S. in the 60s.
Or, for that matter, contemporary Canada. Deficits we have had, and recovery we have had. But the second did not follow the first: it preceded it. The recovery began in second-quarter 2009, long before a federally funded shovel had hit the ground: the budget had only just been passed, after all, let alone implemented. Months afterwards, the Liberal party was still complaining that very little of the promised funds had actually been spent, as opposed to appropriated.
http://www.canada.com/business/Coyne...982/story.html
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Originally Posted by Havakasha
He opposes the austerity measures that the right wing have been pushing. Much like Paul Krugman he believes that that is the wrong policy prescription. I have posted many articles on the problem with austerity solutions in Eurorpe and in the U.S. (particularly on the state level).Stimulus was the right decision in 2009 and I wish there were infrastructure bills going forward. Lets hope the Republican Congress 