Wednesday, February 19, 2014

Paul Krugman's Stimulus Errors

Paul Krugman has a blog piece up going over (yet again) the legacy of the 2009 economic stimulus. This is ground that has been covered extensively before but I still think Krugman makes a few major errors in his analysis. Basically Krugman think that the stimulus's  legacy is mixed because while it helped the economy in the short term, it also caused major political harm to liberals and Democrats, "...mainly from the fact that the ARRA was too small and too short-lived to do the job, but partly also from a serious mistake in the way the administration sold it."

He's said this a lot over the years, but I think this type of analysis has some major category problems that people like Krugman have never really addressed. First of all Krugman assumes that making ARRA bigger was something that was easily attainable, but unfortunately Obama just didn't do it. To be blunt there really isn't a whole lot of evidence for that, most of the evidence I've seen over the years is that the size of the ARRA that passed was very much on the large size of any potential stimulus. Indeed it was almost twice as big as the initial proposal rolled out by the super liberal Nancy Pelosi. So maybe a more aggressive strategy by the White House Office of Legislative Affairs could have gotten another 20 billion for infrastructure projects or whatever, but Krugman and people like him have never presented any credibly evidence that say a 1.6 trillion dollar stimulus was possible.

Indeed I'd argue Krugman gives away the game later in the post when writes, "You can argue that there was no way the administration could have gotten a bigger plan. Actually, they could have used reconciliation to bypass the 60-vote hurdle; but that was considered too radical." Sorry Paul, the Senate could have passed a different bill via the reconciliation process but there is, and I can't stress this enough, no actual way the President can make the Senate do this. If you have a problem with that take it up with Harry Reid. And setting that (major) problem aside doesn't deal with the fact that it's Congress that has to actually vote for this thing. Christina Romer can write any number down in her briefing materials she wants, but that's doesn't automatically translate into Congress passing it. Even FDR faced considerable Congressional restrains on what the New Deal could and could not do.

Again maybe Obama did leave some money on the table, but there's no evidence that the stimulus could have easily been doubled in size.

Furthermore Krugman really fails to deal with the very real possibility that going for a massive stimulus could have backfired resulting the Congressional Democrats abandoning the plan and running for cover. Majorities seem ironclad until they aren't, and there was always a real threat that asking for a 2 trillion dollar stimulus, as some liberal bloggers have demanded over the years, could have been met with laughter putting the Obama White House in a more difficult position and ultimately getting an even smaller stimulus. How likely was this? I don't know, and neither does anyone else, but ignoring potential downsides is pretty foolish when making political decisions.   

In addition to these errors I think Krugman is really thinking about how voters react to the economy in the wrong way. He seems to think that they would be hyper-rational about the talking points Obama rolled out in selling the stimulus in the lead up to the 2010 mid-terms. But there's no real evidence that this is how voters think. It's very possible that they just ignored the talking points from 2009 on Election Day and voted against the Democrats because voters historically vote against the party in the White House during bad economic times. I, and most political scientists, would argue that this is what probably happened. To put it another way; there's no particular good way to "sell" the economic disaster that befell the world in 2008 and 2009 and a world with a larger stimulus and better talking points would have probably resulted in major GOP gains in 2010 anyway.

There aren't always easy technocratic solutions to problems. Even in hindsight.

1 comment: