CREDIBILITY COUNTS…. Extending on an item he blogged about this week, Paul Krugman notes in his column today that the stimulus had two groups of critics: one that said it was too big, and one that said it was too small. With the elections coming up, and the fragile recovery looking shaky, it matters who was right — and who wasn’t.
The Nobel laureate reminds us, for example, that the Wall Street Journal‘s far-right opinion page, like conservatives throughout the political establishment, warned that the Recovery Act would lead to higher interest rates and higher inflation. The right was wrong. More progressive critics, including Krugman, said the severity of the recession needed a more ambitious response. The left was right.
The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn’t applied on a sufficient scale. And we need another round.
I know that getting that round is unlikely: Republicans and conservative Democrats won’t stand for it. And if, as expected, the G.O.P. wins big in November, this will be widely regarded as a vindication of the anti-stimulus position. Mr. Obama, we’ll be told, moved too far to the left, and his Keynesian economic doctrine was proved wrong.
But politics determines who has the power, not who has the truth. The economic theory behind the Obama stimulus has passed the test of recent events with flying colors; unfortunately, Mr. Obama, for whatever reason — yes, I’m aware that there were political constraints — initially offered a plan that was much too cautious given the scale of the economy’s problems.
I have to admit, as disconcerting as it is to see the political winds blowing in the wrong direction, arguably the most frustrating thing about Republican impending successes in the midterms is the perverse rewards for those who were the most wrong.
At a moment of crisis, conservatives made a series of predictions, assessments, and guarantees — all of which turned out to be hopelessly backwards. Rewarding the confused only encourages more confusion, while punishing those who were right only encourages worse policymaking.