Morning Must-Read: Paul Krugman: The Unwisdom of Crowding Out

…with the defense of Keynes by Peter Temin and David Vines…. Temin-Vines… seems to conflate several different bad arguments under the heading of ‘Ricardian equivalence’, and in so doing understates the badness. The anti-Keynesian proposition is that government spending to boost a depressed economy will fail…. I actually see five arguments out there–two (including the actual Ricardian equivalence argument) completely and embarrassingly wrong on logical grounds, three more that aren’t logical nonsense but fly in the face of the evidence. First, there’s the Say’s Law argument…. ‘This is just accounting,’ declared John Cochrane. No, it isn’t–and it was the remarkable fact that prominent economists were saying things like this, as if none of the debates of the 1930s had happened, that led me to proclaim a Dark Age of macroeconomics. Second, there’s the misuse of Ricardian Equivalence…. Even if it were (it isn’t), what the anti-Keynesians were saying was wrong, as I tried to explain a number of times…. Third, there’s the standard textbook crowding-out story… [which] doesn’t work when we’re at the zero lower bound…. Fourth, there’s the claim that we’re at full employment, or maybe always at full employment…. Finally, there’s the confidence fairy…. You do a disservice to the debate by calling all of these things Ricardian equivalence; and the nature of that disservice is that you end up making the really, really bad arguments sound more respectable than they are…