And here’s Paul Krugman telling you not to worry too much about the size of the public debt when the economy is on the brink of a Japan-like lost decade. Yes, we'll have to pay down the public debt some day, but the debt crisis we're hearing about today is largely a politically motivated fabrication (my emphasis):“Both Mr. Daniels, who spoke Saturday at the Conservative Political Action Conference, and Chris Christie of New Jersey, who spoke Wednesday at the American Enterprise Institute, were critical of both parties and put forward the same message: Wake up. We are in crisis. We must save our country, and we can. But if we don’t move now, we will lose it. This isn’t rhetoric, it’s real.”
Regular readers of this blog know that I’m fascinated by reasonable ideologues’ conflicting certainties. In this case, the conflict between the Daniels/Christie/Noonan and the Krugman(/Obama?) view of the political economy is importantly a function of systematic disagreement among highly-credentialed economists. Not being an economist myself, I wouldn’t presume to tell you whether conservative neo-classicists or liberal neo-Keynesians are getting the better of the macro-economic argument. From what I can tell, figuring that out presents a fiendishly (and maybe an unfathomably) complicated intellectual problem. As often happens in scientific communities, competing schools of thought have enough give in their conceptual joints to prevent either side from determining to the other’s satisfaction what counts as decisive evidence as to their comparative reliability.“There are three things you need to know about the current budget debate. First, it’s essentially fraudulent. Second, most people posing as deficit hawks are faking it. Third, while President Obama hasn’t fully avoided the fraudulence, he’s less bad than his opponents — and he deserves much more credit for fiscal responsibility than he’s getting. ”
I think, however, that I know this much: each side’s analysis turns on models of the political economy designed to separate operative politico-economic causes from inconsequential noise. The reliability of any such model is a function of the extent to which it succeeds in modeling all of the operative causes. Yet nobody with a finite intelligence can know that he and his colleagues have thought of everything that matters. That takes not just rationality but omniscience. Nor, for that matter, can anyone reliably estimate the likelihood that his theory approximates the truth to an acceptable degree. There’s no getting around the fact that judgments about monetary and fiscal policy have to be made under conditions of incalculable uncertainty. So anyone evaluating alternative public policy has to ask himself: what happens if my best theory about how the world works is wrong?
When they have to make important decisions under conditions of uncertainty, reasonable people submit to a little self-examination. They have to decide where they belong on the spectrum of people ranging, at one extreme, from those who always swing for the fences by choosing the course of action that presents them with the most gratifying best-case scenario, and those, at the other, who timidly choose the course of action that presents the least onerous worst-case scenario. Most of us belong somewhere between these extremes; we’re at least as impressed by the badness of worst-case scenarios than by the goodness of best-case scenarios.
Krugman, and the people inspired by him, are swinging for the fences. He’s always ready with an ingenious argument about why there’s no cautionary lesson for us when some welfare state like Greece or Spain teeters on the brink of insolvency. And if you suggest that the fact that unemployment still hovering around 9% shows that the project of stimulating the economy through debt-financed public spending doesn’t work, he’ll get right in your face: “[The] stimulus can’t have failed,” he insists, “because it never happened. Once you take state and local cutbacks into account, there was no surge of government spending.”
I'll leave to others to decide whether Krugman’s getting the better of his argument against the austerity brigade lining up behind people like Daniels, Christie and Noonan. But how many people are ready to bet the ranch on it?