KausFiles

Krugman: ‘I Didn’t Mean That Stimulus!’

Paul Krugman now says that some kinds of Keynesian stimulus spending just aren’t as effective as other kinds. Specifically, he suggests, aid to state and local governments (to enable them to keep government workers in their jobs) is a sort of second-class stimulus:

So what happened to the stimulus? Much of it consisted of tax cuts, not spending. Most of the rest consisted either of aid to distressed families or aid to hard-pressed state and local governments. This aid may have mitigated the slump, but it wasn’t the kind of job-creation program we could and should have had. [E.A.]

Hmm. That’s not what I remember him saying back in 2009. In 2009, if I remember right, job-preserving aid to state and local governments was almost the most important thing in the world. Let’s see … searching … searching … Sorry I’m a little rusty … searching … whoops, hit the Times paywall … searching … ah, yes:

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. [E.A.]

I can’t find the part where he says “but in two years if it doesn’t work I’ll say it just wasn’t the right kind.” …

Update: Alert Reader F suggests a possible reason why Krugman’s initial union-friendly insistence that aid to states was “the most effective” stimulus turned out to be wrong:

The states are deleveraging too, primarily due to their pension obligations. Just like tax cuts, then, a portion of each state relief stimulus dollar was used to avoid borrowing or pay down pension or bonding debt. [E.A.]

Did Krugman not realize this possibility? Or did it just get in the way of his pat condemnation of the evil “centrists”?

  • Jjmarklin
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  • Dredmalice

    I don’t know why I expected Daily Caller readers to understand a point that didn’t end in the phrase ‘liberal fascism’, but in my earlier comment I was not addressing whether Krugman was right (which he was) but whether Kaus misrepresented what Krugman wrote (which he did)

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  • loudog

    stimulus is running out:

    “The stunning drop came in government employment, which lost 39,000 jobs. Federal employment, which had been relatively stable, dropped by 14,000, but the real hit came on the local level with 18,000 people cut, many of them public school employees. The economy has already lost 493,000 government jobs since the recession ended, most of them eliminated by cash-short cities and counties.”

    http://newsfeedresearcher.com/data/articles_b28/jobs-recession-economy.html

    • truebearing

      Do you understand why? Or are you going to rummage around through the Progressive propaganda sites to find a false explanation?

      Revenues for the government are down because the government has destroyed the private sector. Now the bureaucrat class is finally feeling the effects. The low tax rates you lefties have been bragging about are theresult of people dropping into lower tax brackets, some of which don’t pay taxes. Now the government is running out of money.

      “Tax the rich” you’ll shout, making obvious your lack of understanding of why we are in this pinch to begin with.

      What will you do when the rich are drained and join the ranks of the poor? Who will the Statist parasites bleed for money? Will they resort to selling our organs, or confiscating all of our belongings? This is the failure of socialism. Do you get it, yet?

      • guest

        Wait, so you’re arguing that there’s a crowding out effect caused by government spending on GOVERNMENT JOBS?  That’s patently absurd. 

  • Donutwarrior

    I do remember my economics classes and remember the other part of Keynesian Economics – namely that the government saves money during good times to spend in the bad. Government contracts during the good times. This is why Keynesian economics cannot ever work in the real world (governmemt rarely if ever contracts). Its also why growing government is not Keynesian economics. Keynes thought spending on things like infrastructure during slowdowns was a good idea, but ha also said that during the good times spending declines. That NEVER happens, and won’t ever happen if you set up a stimulus that pays government workers, and isn’t designed as a temporary spending measure. Of course borrowing mountains of money wasn’t Keynes idea either….the paying it back part makes the stimulating part moot. So Krugman is just an idiot, I’m not sure even Keynes would think much of him.

    • guest

      It does decline as a percentage of gdp, which I think is pretty fair.

  • jonathan galt

    Japan estimates that it will take between 250-300$ billion to fix the earthquake/ tsunami damage. Did you see the extent of the devastation to their infrastructure and property? They feel they can fix it all for roughly a third of the stimulus. It is hard to find any results of the stimulus outside of union ledger sheets. Our government is bloated, inefficient and ravaged by union costs. The big dig in Boston, 3.5 miles, cost 22 billion and will be paid off by 2038! One tunnel cost roughly 1/8 of Japan total repair costs which includes over 60 tunnels and underground train platforms.

    It is laughable that anyone is defending Keynesian economics. If you can spend your way to prosperity, why not spend 50$ trillion. If democratic policies work so well, why are areas that have been under near complete control by democrats for forty years, Baltimore, Detroit, Gary, New Orleans, Newark, etc. Suffering the most? Should not these areas be thriving examples of liberal success? With all the anti-poverty programs, why is irvine worst in democratic strongholds? Maybe the same reason that poverty flourishes in Cuba, the communist eastern bloc, north Korea. The USsr controlled the economy, industry, their own monetary system, yet it failed miserably. Why?

    • guest

      “If democratic policies work so well, why are areas that have been
      under near complete control by democrats for forty years, Baltimore,
      Detroit, Gary, New Orleans, Newark, etc. Suffering the most? ”

      Municipal governments can’t and shouldn’t provide economic stimulus.  That’s why.

  • PerryM

    Running America is NO different from running your home – the math is the same.

    There is ONE exception – governments control the currency and can turn the printing presses on and make as much as they want anytime they want.

    You know very well that you can’t increase your standard of living by maxing out your charge cards – sure in the short run you live high on the hog but you eventually have to pay them back with big interest – so using credit to increase your lifestyle is stupid; but the Liberal way.

    That’s what wacko Liberals do all the time – look at what Obama, Barney, Harry, and Nancy want to do to America – max out our credit. Well they have and now they want more credit to do it all over again. How many times have we maxed out our credit? Think that’s a good idea?

    This doesn’t work at home and doesn’t work at the country level either.

    ALL governments in history have gotten out of this credit mess the same way – just turn the printing presses on and make as much money as they need to pay the debt they incurred. Only one problem – hyper inflation follows. But the governments don’t care since they pay off fixed debt with hyper inflated money.

    Hundreds of countries have tried this and all went out of business – America will be no different – we are not special…………

  • paul1149

    Awesome catch. The liberal punditry is a cesspool polluting this nation.