Krugman’s blog, 11/3/15

There were three posts yesterday.  The first was “Consider the Source, Obamacare Edition:”

Maybe I’m just being naive, but if it were up to me, reports on politicians’ pronouncements would provide some context about things those politicians have said in the past – just to help the readers, who probably don’t have dossiers ready to hand.

So, for example, if The Hill is going to report Sen. John Barrasso’s assertion that Obamacare may collapse this year, it would be a service to readers to note that Sen. Barrasso was one of the people claiming that more people would lose coverage than gain it under the Affordable Care Act – and who, when enrollments surged, declared that the administration was cooking the books.

But then again, context has a well-known liberal bias.

The second post yesterday was “Demand Creates Its Own Supply:”

One of the intellectually horrifying things about the response to economic crisis was the way many economists, some of them famous, reinvented old fallacies in the belief that they were saying something profound. In particular, quite a few economists seemed utterly unaware that Say’s Law – the proposition that supply creates its own demand, that shortfalls in aggregate demand were impossible – had been refuted three generations ago.

In fact, not only doesn’t supply create its own demand; experience since 2008 suggests, if anything, that the reverse is largely true – specifically, that inadequate demand destroys supply. Economies with persistently weak demand seem to suffer large declines in potential as well as actual output.

The suggestion that this might be true goes back a long ways, to work by Olivier Blanchard and Larry Summers in the 1980s. But events since the crisis provide a lot more evidence, just as they do on fiscal multipliers. A new paper by Fatas and Summers looks at the impact of fiscal austerity, not on actual output, but on estimates of potential output; it finds large negative effects.

The implications are shocking: austerity looks like even more of a catastrophe than the conventional analysis indicates. In fact, it’s a pretty good bet that imposing austerity in economies that can’t offset its effects with monetary policy inflicts pain without any gain whatsoever: by reducing the future size of the economy and hence the tax base, austerity actually worsens the fiscal outlook.

The Very Serious People have a lot to answer for. But of course they never will.

Yesterday’s last post was “The Conspiracy Consensus:”

So, are we supposed to be shocked over Donald Trump claiming that Janet Yellen is keeping rates low to help Obama? Folks, this is a widely held position in the Republican Party; Paul Ryan and John Taylor accused Ben Bernanke years ago of doing something dastardly by preventing the fiscal crisis they insist would and should have happened under Obama. If Trump’s remarks seem startling, it’s only because the press has soft-pedaled the conspiracy theorizing of seemingly respectable Republicans.


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