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Thursday, February 20, 2014

Paul Krugman, "The Stimulus Tragedy": Excuses, Excuses, Excuses

Have you ever encountered someone whose thesis has been proven wrong, but who persists in claiming that if everything had been done her/his way, the problem would have been solved? If not, have a look today at Paul Krugman's latest New York Times op-ed entitled "The Stimulus Tragedy" (http://www.nytimes.com/2014/02/21/opinion/krugman-the-stimulus-tragedy.html?partner=rssnyt&emc=rss&_r=0). His usual modest self, Krugman writes:

"All the evidence, then, points to substantial positive short-run effects from the Obama stimulus. And there were surely long-term benefits, too: big investments in everything from green energy to electronic medical records.

So why does everyone — or, to be more accurate, everyone except those who have seriously studied the issue — believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly — not disastrously, but poorly — after the stimulus went into effect.

There’s no mystery about why: America was coping with the legacy of a giant housing bubble. Even now, housing has only partly recovered, while consumers are still held back by the huge debts they ran up during the bubble years. And the stimulus was both too small and too short-lived to overcome that dire legacy."

That's right, only Krugman has "seriously studied the issue." And yes, notwithstanding the fact that US federal debt now exceeds $17.3 trillion and will never be returned, President Obama should have bet the farm on stimulus, i.e. doubled down on spending on "big investments in everything from green energy to electronic medical records."

Me? I don't think Obama's stimulus was a failure. It may have been partially misdirected upon green energy and electronic medical record projects, but it was not a failure: the banks did not fail, and Ford and General Motors remain among the living. Regrettably, however, I believe that unemployment in the US might never return to its halcyon levels of 5 percent. Efficiency in our brave new world comes with a price.

On the other hand, Obama has also persisted in perpetuating the policies of his predecessors, which have destroyed the infrastructure necessary for future growth. Consider the effects of the cancellation of the Uptick Rule (see: http://jgcaesarea.blogspot.co.il/2013/08/maureen-dowd-summers-of-our-discontent.html) and the demise of antitrust law (see: http://jgcaesarea.blogspot.co.il/2014/02/paul-krugman-barons-of-broadband-when.html).

Place all our faith in Paul Krugman, and even now, go ahead with further massive stimulus? I don't think so. You see, Nobelist Krugman is far from infallible. Consider his past support for Occupy Wall Street  (http://www.nytimes.com/2011/10/07/opinion/krugman-confronting-the-malefactors.html):

"Occupy Wall Street is starting to look like an important event that might even eventually be seen as a turning point.

. . . .

It’s clear what kinds of things the Occupy Wall Street demonstrators want, and it’s really the job of policy intellectuals and politicians to fill in the details."

Can you only imagine if "intellectuals and politicians" had indeed acted on Krugman's advice "to fill in the details"? I shudder at the consequences.

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