Morning Must-Read: Paul Krugman: I See Very Serious Dead People
Let me (surprise, surprise!) back up Paul here: There is no doubt that, technocratically, reflation is the low-hanging fruit to boosting equitable growth. Successfully returning to full employment would boost real GDP in the North Atlantic by 10% today, would boost future economic growth substantially as well, and would lift all economic classes more-or-less equally. No plausible policy shifts to produce “structural reform”–save possibly the “structural reform” of raising the price level in Germany and Holland relative to Italy and Spain by 20%–promises North Atlantic-wide benefits even a fifth as much.
But for many, once you start admitting that the Keynesian fiscal and Friedmanite monetary régime-change policies are the ones that pick the low-hanging fruit, you have put yourself in opposition to the German Ordoliberals and the British Conservatives and the American Republicans (all save James Pethokoukis, Scott Sumner, and Ramesh Ponnuru). And to say that the leftist fringe of European and British politics and the Elizabeth Warren wing of the Democratic Party in America are right and deserve support–well, that appears to disqualify you from being taken seriously as a sensible centrist, or even as a sensible moderate left-of-center establishment thinker these days. It makes you… shrill…
A couple of years ago the fact that Olivier Blanchard’s shop at the IMF and that Jan Hatzius’s shop at Goldman Sachs are willing to hoist signal flags 1 and 6 together and point out what the macroeconomic evidence and theory suggested would be good policies gave me hope then for rational policy. And right now Syriza begs for less pointless, destructive austerity, Larry Summers continues his long campaign (with some IMF help) for large-scale publicly-funded infrastructure investment, Christina Romer continues to argue for monetary régime change, and there are others–but we are many, many fewer than we should be. And for what? for Wales?…
…to turn discussions away from monetary and fiscal policy, recessions and sluggish recoveries, to the supposedly more fundamental issues of structural reform and long-term growth. Rattner dismisses the austerity/stimulus debate as ‘simplistic’; Jeff Sachs calls Keynesian concerns ‘crude’; many… are eager to get away from all this deflation stuff and talk about how what they imagine to be, or wish were, the really important issues like Big Data and a world that’s even flatter. There were people like that during the Great Depression too….
So…. First, we’re now in year eight of a massive setback to economic growth, to living standards…. Technology hasn’t retrogressed; institutions haven’t suddenly gotten far worse. This is about the business cycle, and about business cycle policy. If you want to ignore all that… you’re exactly the kind of person Keynes was mocking…. Second… Keynesian macroeconomics… has worked very well in this long slump. While people were very seriously intoning that it was simplistic and crude to think that those little models could be of any use in a changing world yada yada, macroeconomists were making remarkable, counterintuitive predictions… that came true…. Third, what’s really striking about all the talk about… structural issues… is how fuzzy the thinking is…. The Very Serious seem remarkably casual about thinking things through.
Finally, I know that people who airily dismiss the austerity debate and all that and demand that we focus on the long run think they’re taking a brave stand; but you know, they aren’t…. Face it, stimulus and austerity, QE or not, are politically charged issues where taking any kind of stand will get you attacked. And since they are also important issues, pretending that they aren’t is a form of moral cowardice.