David Brooks is worried. The leaders of his Republican Party and the shills who advise them on economic policy are being called out by the country’s best known Nobel economist, who called the Republicans and other deficit hysterics a "coalition of the heartless, the clueless and the confused" for, among other things, "punishing the jobless." Brooks is worried, I suspect, because it’s starting to stick.
So Brooks enters the wrong ring to throw a nasty punch at Paul Krugman, and he lands several blows . . . right on the kisser of his own credibility. Poor David is not just confused, he’s way out of his weight class.
Not long ago, Brad DeLong was wondering how is it we have lost the debate between stimulus to deal with a stalled economy and 15 million unemployed versus deficit hysteria and advocates of inflicting further pain on the jobless and budget strangled states. After all, the economic data and conditions show we have minimal inflation (including minimal expectations for future inflation) trending instead towards deflation. Long run Treasury rates are at or near record lows, with zero signs of a lack of investor confidence in the US government’s ability to pay its debts. Instead of fearsome bond vigilantes trying to sink the government, we have investors flocking to buy Treasuries and pushing rates down.
These are all clear signals for doing a lot more now to reboot the economy, making much needed investments at lower borrowing costs, reducing unemployment and rescuing drowning states. None of the economic data provides evidence to justify fears of inflation, higher interest rates, or alleged market jitters over deficits. There are no phantom bond vigilantes waiting (or able) to bring down the US government it if rescues its own economy.
Brooks apparently fears DeLong and Krugman might be getting somewhere by explaining this logic and reciting the evidence over and over. Since he doesn’t confront either the logic or the growing data that supports it, he’s left with insulting Krugman and friends while pretending not to:
These Demand Siders have very high I.Q.’s, but they seem to be strangers to doubt and modesty. They have total faith in their models. But all schools of economic thought have taken their lumps over the past few years.
Note Brook’s cowardice is not naming Krugman, DeLong, Baker, et al, or for that matter, traditional Republican economic advisers like Bruce Bartlett and Mark Zandi, who recently called for more stimulus now and strongly warned Congress against cutting spending before the economy has more fully recovered.
Brook’s intellectual sleight of hand is to say, "well, all economists have been wrong, so why pay attention to Krugman and friends?" That’s just dishonest, because not all economists have been wrong, and it’s important to know which have been right and which have been catastrophically wrong.
Over the last 30 years, a particular group of economists has been proved dead wrong, and their belief system nearly destroyed the economy. It’s the school of economists who claimed markets are self correcting, that financial markets don’t need much oversight, and the government shouldn’t use fiscal policy to help a depressed economy recover even when monetary policy (lowering Fed interest rates) becomes ineffective. When Alan Greenspan in a moment of candor admitted his surprise and shock that his entire economic philosophy had failed, he was speaking for that school, which Krugman et al have vilified for forgetting essential lessons from the Great Depression. It is Greenspan’s school, not Krugman and friends, that has been arrogant in rejecting well deserved criticism. But Brooks seems completely ignorant of this distinction.
The Demand Siders don’t have a good explanation for the past two years.
Either Brooks is unaware of the warning many economists gave about the inadequacy of the 2009 stimulus, or he’s being dishonest. Dean Baker demolishes Brooks here.
It was also easy to see that the stimulus approved by Congress was inadequate. Demand siders rely on something called "arithmetic" to reach this assessment. After pulling out the $80 billion fix to the alternative minimum tax, which had nothing to do with stimulus, and the $100 billion or so designated for later years, the stimulus provided for roughly $600 billion in spending and tax cuts over the years 2009 and 2010. This comes to $300 billion a year. Roughly half of the federal stimulus was offset by cutbacks and tax increases at the state and local level, leaving a net stimulus from the government sector of roughly $150 billion a year.
Demand siders did not believe that $150 billion in annual stimulus from the government could offset the contractionary impact of a reduction in annual spending by the private scctor of $1.2 trillion ($1.2 trillion > $150 billion). That is how demand siders explained the failure of the stimulus to have much impact in reducing the unemployment rate. Perhaps this explanation is too complicated for Mr. Brooks (he repeatedly complains about the high IQs of the demand siders), but it actually seems fairly straightforward. If he wants to be honest, he could at least say that he doesn’t understand the demand siders’ explanation, rather than asserting that demand siders do not have an explanation.
And Krugman responds on his blog with Arguments from Authority:
Funny, I thought we had a perfectly good explanation: severe downturn in demand from the financial crisis, and a stimulus which we warned from the beginning wasn’t nearly big enough. And as I’ve been trying to point out, events have strongly confirmed a demand-side view of the world.
Moreover, the Demand Siders write as if everybody who disagrees with them is immoral or a moron. But, in fact, many prize-festooned economists do not support another stimulus. Most European leaders and central bankers think it’s time to begin reducing debt, not increasing it — as do many economists at the international economic institutions. Are you sure your theorists are right and theirs are wrong?
And Krugman responds:
Yes, I am. It’s called looking at the evidence. I’ve looked hard at the arguments the Pain Caucus is making, the evidence that supposedly supports their case — and there’s no there there.
And you just have to wonder how it’s possible to have lived through the last ten years and still imagine that because a lot of Serious People believe something, you should believe it too. Iraq? Housing bubble? Inflation? (It’s worth remembering that Trichet actually raised rates in June 2008, because he believed that inflation — not the financial crisis — was the big threat facing Europe.)
Krugman is being too polite. He left out that Brooks is telling his Republican audience that they should pay no attention to America’s most respected economists who got it right, but instead listen to . . . wait for it . . . "European leaders and central bankers" who almost universally missed the housing bubbles, ignored the shadow banking system and mismanaged the crisis when both collapsed!
I think David went down for the count with that one. But he’s not done with making himself look silly. Here’s the next insult:
The theorists have high I.Q.’s but don’t seem to know much psychology.
This is Brooks’ way of repeating the Republican talking point that business is not investing because it fears spending now will mean much higher taxes and inflation later. But Krugman and friends have been knocking this one down for months — why would businesses invest when there’s excess capacity and no customers able to demand their products? — and there’s simply no evidence that any of these imagined fears are the reasons investors are sitting on their money (and see Yves Smith’s link to Keen below).
The Demand Siders are brilliant, but they write as if changing fiscal policy were as easy as adjusting the knob on your stove.
Uh, no, Mr. Brooks. Today’s issue is actually simpler than that. It’s about whether you run the pump forward to get the economy going or run it backwards and apply leeches to suck the lifeblood from the anemic patient, while claiming this will help them. The fact that more people are starting to get how medieval and wrong this is probably explains why Brooks is worried.
But here’s how you know David Brooks is worried that he too might be identified with the coalition of heartless, clueless and confused. After repeating the Republican mantras about why deficit reduction is so important, he winds up arguing for more spending:
Well, there’s a few short-term things you can do. First, extend unemployment insurance; that’s a foolish place to begin budget-balancing. Second, you need to mitigate the pain caused by the state governments that are slashing spending.
Ah, just the centrist trick for appealing to his favorite President. David Brooks: he may not be totally heartless or clueless; just dazed and confused.
More: David Brooks’ reading list for today:
Brad DeLong, citing Martin Wolf, How is it that we have lost the argument?
Brad DeLong, on why it’s nonsense to fear the US is on the verge of reaching its debt limit . . .
Brad DeLong believes the argument is lost, We are live at . . . A Keynesian voice crying in the wilderness
Dean Baker, The arrogant David Brooks tells readers stimulus will risk national insolvency
Yves Smith on Steve Keen’s Scary Minsky models
Paul Krugman, Memories of scare tactics past
Scarecrow on Krugman denying that leeches help sick people or recessions