Monday, August 09, 2010

Anticipating the excuse

Paul Krugman finally produces what was always a totally predictable excuse for the failure of the Obama stimulus package:
It’s crucial to keep state and local government in mind when you hear people ranting about runaway government spending under President Obama. Yes, the federal government is spending more, although not as much as you might think. But state and local governments are cutting back. And if you add them together, it turns out that the only big spending increases have been in safety-net programs like unemployment insurance, which have soared in cost thanks to the severity of the slump. That is, for all the talk of a failed stimulus, if you look at government spending as a whole you see hardly any stimulus at all. And with federal spending now trailing off, while big state and local cutbacks continue, we’re going into reverse.
Krugman's excuse for the failure of the Bush (2008) and Obama (2009) stimuli isn't even new. Consider the following passage from a brilliant book written by an astonishingly handsome author more than one year ago:

Ironically, there is no shortage of historical examples to support the idea that even those who nominally subscribe to an empirical approach don’t hesitate to abandon their empiricism when the data doesn’t support their theories. Consider, for example, how two decades of failing mainstream economic policies in Japan have no more caused mainstream economists to conclude that their theories are incorrect than 70 years of economic failure in the Soviet Union caused socialist economists to abandon Marxism. Some excuse is always found to explain away the theory’s failure and rationalize its continued application; if the fiscal stimulus was not too small or too late, then the interest rate hikes were too large or too early. If the federal government’s expansionary efforts were unsuccessful during the New Deal, then it must have been due to their being overwhelmed by the contractionary policies of the state and local governments.
- The Return of the Great Depression, 134

There's really no reason to read Paul Krugman's columns when you can read this blog and anticipate what he's going to be writing one year later. Because Neo-Keynesians never learn from the inevitable failures of their economic models. In the Telegraph today, Ambrose Evans-Pritchard writes: "In Japan itself core CPI deflation has reached -1.5pc, the lowest since the great fiasco began 20 years ago. 10-year yields fell briefly below 1pc last week. Premier Naoto Kan has begun to talk of yet another stimulus package. "The time has come to examine whether it is necessary for us take some kind of action," he said."



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