What’s wrong with the economy? Is it monetary policy? Inadequate fiscal expansion? Too much fiscal contraction? Too much regulation? Too generous a safety net?
The proponents for each of these positions can make a case for their views. Some cases are better than others of course. But it’s not clear at all if any one of these arguments is sufficient or convincing.
But it’s easy for Krugman. Austerity is the reason that the economy is doing poorly:
Opponents of austerity in a depressed economy opposed it because they believed that this would worsen the depression — and they were right.
I don’t know if he’s talking about the US or the world. It’s hard to make the case for the US. Here is Federal government expenditures in nominal terms from 2005 through 2012 (taken from BEA Table 3.2)
| 2,604 | 2,760 | 2,928 | 3,141 | 3,480 | 3,721 | 3,765 | 3,773 |
That’s in billions of nominal dollars. So federal spending rose steadily through 2010. Over the last two years it has been steady in nominal terms. I’m not a Keynesian so I don’t know whether you’re supposed to use nominal or real. In real terms, federal spending is down slightly between 2010 and 2012. It’s flat in nominal terms. You’ll see the same pattern in the State and Local data. Flat for the last two years in nominal terms–slight reductions in real terms.
Did the level of federal spending “worsen the depression?” I don’t think he can back up that claim in the US. The recession ended in 2009. Did it slow down the pace of the recovery? It’s possible. But that’s not Krugman’s claim.
Unfortunately Krugman’s main point is that his opponents are dishonest. They pretend to be in favor of austerity but they really want to destroy the welfare state. His side, those who opposed austerity, are noble truth-seekers. His summary:
So this hasn’t been a symmetric debate — and that’s why my side has won completely on the facts, but continues to lose in the political sphere.
There. That was easy.
I continue to believe that the facts are complicated and interpreting them is very very hard.
