Sunday, February 8, 2009

Paul Krugman increasingly shrill

Krugman is now lamenting that there are "wingnuts everywhere". Apparently what these wingnuts have in common is a skepticism of Keynesianism. Yet from a purely sociological perspective, if deviants are "everywhere", isn't deviation the new norm?
Last summer, Krugman labelled "Republicans ... the party of stupid". But if that's true, how is it that Krugman's professional colleague, Harvard prof Greg Mankiw, should be sending "kudos" to a lengthly list of politicians, every last one of whom has an "R" behind his or her name?
Methinks the Nobel laureate writing for the NYT should dial it down a notch. Not because he doesn't have a valid point about influential elements of the 21st century GOP being overly hostile to the intelligentsia, but because his charges of widespread wingnuttery suggest as fact something that simply isn't, namely, that those who disagree with him subscribe to fringe theories not to be taken seriously by educated people.
Acccording to David Brooks,
About a third of economists that I was talking to really hate this bill. They think it will cause inflation, really screw up our long-term fiscal situation. Republicans are arguing out of principle, I think.

Part of the problem here with finding a consensus is that there isn't a textbook economic answer like there is to questions like rent control or free trade. It is generally agreed that the long term objective must be to move out the long run aggregate supply curve. But that doesn't say anything about what to do about the short run aggregate demand curve. Most of the serious stimulus skepticism is not directed at Keynesianism as a theoretical model so much as at the efficacy of any particular government effort to manage demand and the political difficulties of reversing in the future deficit spending that is supposed to be reversed.
The Economist's Feb 7 edition notes that a "main conflict lies between the need to spend quickly and the desire to spend well." My own view, and I suspect that of most of my fellow stimulus skeptics, is that in the presence of uncertainty, one should err in favour of spending well. Having said that, there's no denying that whatever the merits of Schumpeter's "creative destruction", the Great Depression wasn't worth it. There does come a point where the risk of a devasting collapse in demand is so great that massive spending is called for. Whether we have reached that point, or could even ever reach that point when monetary (as opposed to fiscal) policy is running flat out expansionary (something that was not the case in the 30s), is another question.

You knew conservatism and fiscal prudence had gone the way of the Edsel when the promoters of Montreal's Just for Laughs festival praised the Flaherty budget for lavishing money on festivals. Comedians no longer exist just to give us the giggles: now they're economic stimulus.
- Derek DeCloet, G&M ROB, Feb 7

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