Veronique de Rugy seems so wrapped up in her political project of reducing the size of government that she seems to have completely missed the point of the Keynesian argument that Paul Krugman is making. She seems to be talking about the level of government spending, as a proportion of the economy or in terms of aggregate total expenditures. But the Keynesian argument isn’t about the aggregate level of spending, it’s about the relationship between spending and government income. In demand-driven recessions governments should deficit-spend to make up for inadequate private demand. Conversely, during bubbles governments should tax more than they spend to make up for excessive private demand. Aggregate spending levels are irrelevant to this process.
She’s either ill-informed on Krugman’s writing, or lying through her teeth because of the ideological ax she’s grinding: “Krugman has been consistently calling for more government spending.” In fact, the opposite is true. Here is Krugman in 2000 attacking Dick Cheney for being a “vulgar Keynesian“:
First, on their face Mr. Cheney’s remarks were those of a vulgar Keynesian — a believer in the now-discredited doctrine that taxes and spending should be routinely twiddled in an attempt to ”fine-tune” the economy. Decades of experience shows that this is a bad idea, that when governments try to fight garden-variety recessions by cutting taxes or increasing spending they almost always get it wrong. By the time Congress has finished negotiating who gets what, and puts the new law into effect, the recession is usually past — and the fiscal stimulus arrives just when it is least needed. Fiscal pump-priming has its place; it’s appropriate in the face of deep and persistent slumps. But otherwise we should make budgets for the long run, and let the Fed deal with short-run problems by adjusting interest rates. It’s disturbing that Mr. Cheney seems unaware of this basic policy rule.
That seems remarkably consistent with what he’s been saying recently during this recession: that a burst of government spending during this particularly grave and destructive slump is necessary. He was all over the Bush administration for increasing spending and cutting taxes simultaneously, worrying that the result would be destabilizing spikes in interest rates. However, he’s been saying that now that while we are in a liquidity trap, deficits are not a priority because the government is awash in cheap foreign capital searching for the safest asset it can find, US government debt. One need only look at current interest rates (1.6%, lower than projected inflation) to see that investors are literally paying the US government to borrow their money. In this interview from a few weeks ago, Krugman states that once the recession is clearly in the rear-view mirror “I will be a fiscal hawk”.
What’s very telling about Ms. de Rugy is that she tries to get herself across the finish line by taking Krugman’s obvious joke about an alien attack and painting him as a lunatic. She seems to have little regard for the intelligence of Dish readers.
One more reader:
I’ve been a reader for years, and have always respected the Dish for your willingness to make passionate, logical critiques of so many political sacred cows. That’s why I’ve been so outraged and disappointed to see you repeatedly give a pulpit to Veronique de Rugy and her hyper-conservative creed of data-less, reality-denying austerity fetishism. Her most recent video on whether austerity in Europe has failed is a jaw-dropping act of rigid, heartless kitsch in the face of three years of brutal economic pain. Put simply, almost all the budget slashing/broad tax hiking/privatization programs in Europe (and their halfway cousin in the US) have crippled GDP growth, backfired by reducing government revenues, compounded deficits, and, oh yeah, put millions out of work and out of school and out of the social welfare systems they dutifully paid into for years. The BBC has a simple review of the cuts and tax increases at this link, and Plumer’s chart in your May 9th post sheds some light as well.
As for her argument that capital flight is the bigger issue, this is a classic smoke-and-mirror tactic; most lay folks don’t know what the hell this means. But I’m an economics graduate from a top US school, so I won’t fall for it. The minor bank runs we’ve seen in Europe have only started in the last year, and at best, they’re only a tiny compounding issue on the vast issue of collapsed employment and absent demand. Let’s not get distracted from the evidence of the past few years. Keynes, with updates, works. Active monetary policy works. It’s worked in Israel, Sweden, Germany (though they’ve undermined it with mandated fiscal/monetary austerity for their neighbors). I generally recommend the work of Delong, Krugman, and Yglesias on this subject.
Sully, I know you have a conservative position in debt debates. This has always distressed me on the Dish; you have a huge audience, and by sponsoring de Rugy’s ideas, you’ve gone far to the right of even the Economist on this issue. Giving a pulpit to an ideological bully from the hackish, Koch-tied Mercatus Center goes too damn far. I appreciate that you featured many critical responses to de Rugy’s absurd chart when you put it up on May 9th. But you don’t give those saner voices a regular video feature, with no caveat. Give a disclaimer about her funding, at least. Or better, only feature her alongside a few economists from the center and left.
The point of the Ask Anything series is not to provide a Dish-approved voice on a particular topic. It is to give individuals a completely free shot at making their case, and leaving it to readers to glean what they make of it. I could interrogate or push or guide. But the point is to do none of this. If someone makes a poor impression, then the feature has succeeded. It shows that even under the most advantageous circumstances, someone fails to make a credible or convincing case. That’s worth knowing. Because they are guests, I’m not commenting on anyone we host. I have some modicum of manners. But allowing readers to rip arguments to shreds is part of the process.
I might add that we have had Bruce Bartlett in the series as well. And we’ll have more liberal economic figures going forward. The point is not to praise or dismiss anyone, let alone provide some kind of blessing; but to listen, and to learn who has the best arguments and why. You need a diversity of opinions to get there. And the Dish is doing its best to provide it. Suggestions for guests are, of course, more than welcome.
“Ask Anything” archive here.