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”?