Krugman is so good on this it has to be reproduced in its entirety:
"Just a brief further thought on the anti-Keynesian flip-out. Consider three propositions:
1. Deficit spending is expansionary, other things equal.
2. Deficit spending is always expansionary.
3. Only deficit spending is expansionary.
Keynesian economics basically asserts proposition 1. Testing that proposition is tricky, but that’s always the case in economics; you have to look for natural experiments, or be very careful about controls. Christy Romer talks about this in her excellent speech (pdf) on the topic. But when you do it right, the evidence strongly supports proposition #1.
Proposition #2 is, well, stupid. It’s what you see in bad comment threads, where people rant about how if Keynesian economics was right, Greece would be a miracle economy.
And proposition #3 is worse. Which is why I am boggled to see professional economists apparently believing that this is the proposition to focus on."
At issue in 2012 or 1946 is of course the remarkably dumb proposition #3, which no Keynesian believes. Krugman probably could have added a conditional clause to #1, but I guess "other things equal" could cover most of the conditions I'd add.
By deficit spending, I assume he means an increase in spending relative to taxes right? Or would a decline in taxes with spending constant count as deficit spending?
ReplyDeleteSomething has been bugging me about the whole govt spending debate lately on both sides....why do we think government spending is heterogeneous? Spending on infrastructure is not going to have the same effects on growth or crowding out that investment in research and development does or that bailout of a financial corporation will have. Yet talk of a multiplier, small or large, or whether spending is good or bad relies on all government spending being equal. I don't buy it.
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