Far be it from me to cast a pox on what has been one of the only few bright lights in the last few years but premises matter. In Krugman’s recent Looking for Mr. Goodpain he presents a reasonable derision of those pushing austerity in the face of zero evidence it actually works to restore growth. Unfortunately he starts badly:
Three years ago, a terrible thing happened to economic policy, both here and in Europe. Although the worst of the financial crisis was over, economies on both sides of the Atlantic remained deeply depressed, with very high . Yet the Western world’s policy elite somehow decided en masse that unemployment was no longer a crucial concern, and that reducing budget deficits should be the overriding priority.
Who is Dr. Krugman trying to confuse here? The policy elite of the Western world long ago decided that unemployment was no longer a crucial concern. This glib attitude on the part of policy authorities is not something that developed overnight. Indeed it was not the policy elite that originally developed and encouraged the idea that mass unemployment was acceptable, nay a necessary evil. No, no, no. It was those synthetic Keynesians who crossed the Rubicon from the demand to the supply side of the synthesis in the 1980s.
Once the mainstream of the profession embraced rational expectations and the NAIRU they embraced the apologist strain of liberal economic thought which has always, ok for the last 150 odd years, demonstrated a moral superiority in their ability to celebrate the sufferance of others as necessary evil. That is, once economists like Krugman embraced rational expectations and the NAIRU, taught it and assumed it in their scientific publications Mr. Keynes was dead and Dr. Goodpain (Pigou?) was ushered in.
My problem is not with what orthodoxy teaches its graduate students it is what it teaches its undergraduate students particularly those from outside their departments. The embrace of Dr. Goodpain took decades of the indoctrination of political scientists, sociologists, business admin and journalism students in the simple canonical models of econ 101. In these models unions, minimum wages, rent controls, industrial policy and a commitment to full employment are not only unhelpful they are counter-productive and actually increase economic misery amongst those such policies and institutions seek to help.
So we had an entire generation of policy makers and observers trained to accept the advice of Dr. Goodpain. There has been at least thirty years of a constant drone in the media and the classrooms about no free lunches.
With that context in mind maybe Dr. Krugman can figure out why trying to convince people that the federal government really can borrow (print) money cheap, at historically l
ow dirt cheap rates (assuming it wants to continue the illusion that it is borrowing money), and if they actually spend it on useful projects the medium and long term results will be superior to austerity now is just not the message the masses or the policy elites have been primed to believe.