Krugman’s blog, 12/29/15

There were two posts yesterday.  The first was “Policy Effectiveness since 2008:”

I came down pretty hard on Tim Taylor yesterday, but with reason. There is simply no reason any reputable economist should, at this late date, be saying things like “We tried huge stimulus, but it didn’t work, so maybe fiscal policy is ineffective.” This just flies in the face of the facts. Three points:

1. Actual stimulus was only modest-sized and short-lived, as I documented in my previous post.

2. Since 2010, the distinguishing feature of fiscal policy has been how contractionary it has been compared with previous experience. That’s not just me talking; it has been repeatedly documented by the IMF and others. Here’s the simplest indicator, government employment after the last two recessions:

That spike in 2010, by the way, is temporary hiring for the Census.

3. There has been quite a lot of empirical work on fiscal policy since 2009, and the preponderant conclusion of that work is that fiscal multipliers are larger, not smaller, than under pre-crisis conditions. If you want to disagree with that work, OK, but explain why — a tossed-off remark won’t cut it.

The thing is, this matters — a lot. If fiscal policy is as effective as ever, if not more so, then austerity policies did immense damage, and we really need to be ready to do stimulus in the next downturn. But that has no chance of taking place if even economists who should be well-informed just make up a policy history that never happened.

The second post yesterday was “Mandate Memories:”

Sarah Kliff notes that the individual mandate in Obamacare is turning out to be essential — and it’s working, with the risk pool improving as the penalties kick in. What I wrote back in 2007, when Obama was campaigning against the mandate.

Fortunately, once in office he was a stronger advocate for health reform than I feared — including for necessary pieces he opposed in the primary; what we actually ended up with was, strictly speaking, Hillarycare.


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