Fiscal Foolishness written by Paul Krugman

Paul Krugman

                                                      

Over all, Chris Wallace was better than I expected. But he was pretty bad on fiscal issues.

First of all, still obsessing over the debt? Still taking leads from the Committee for a Responsible Federal Budget? Federal debt simply isn’t a pressing issue; there is no possible reason to make a big deal about it while neglecting climate change, where every year that action is delayed makes the problem harder to solve.

Then there was the discussion of economic policy. It was really bad – and inappropriate – when Wallace talked about the Obama st

imulus, and simply asserted that it “led” to slow growth. That was editorializing, and bad economics.

The past eight years have actually been a huge experiment in macroeconomics. Saying that the Obama stimulus was followed by slow growth is a terrible argument: When you spend money to fight a terrible slump, weren’t any disappointments in performance arguably caused by whatever caused the slump, not by the rescue operation? But we have a lot of other evidence, all of which says that spending money in a slump helps the economy, and that the Obama stimulus was therefore the right thing to do.

Some of that evidence comes from the details of the stimulus itself, which had different effects in different regions – and that tells you a lot about how it worked, and the answer is that it was positive. Even more compelling is the anti-stimulus that came from austerity policies in Europe: Countries that slashed spending and raised taxes had much deeper slumps than those that didn’t.

Basically, events have strongly confirmed the Keynesian thinking that lay behind the Obama stimulus. The impression that it failed comes mainly from the fact that it wasn’t big enough to produce a rapid turnaround – and no, that’s not after-the-fact rationalization. I and others were practically screaming at the time that it wasn’t sufficiently large.

I suspect that Mr. Wallace doesn’t know anything about that; in his circles, the stimulus is assumed to have been a failure. The good news is that Mrs. Clinton knows better – a lot better – and is actually proposing a sensible mix of policies looking forward. Trump’s economics is far from the scariest thing about him, but it would be plenty scary if it weren’t for everything else he says.