Even if a policymaker was sure of the ideal economic policy, he or she can only implement it with the help of some of the other political players.
Larry Summers is . . . indistinguishable from me [Krugman] on macro-policy. And he may be a bit to the left, because he’s even more certain than I am . . . that some extra spending now will actually help us more in fiscal terms. So he published a piece in the Financial Times that was meant to be a big statement about this. But before he got to that, he spend three paragraphs about the importance of dealing with the deficit in the medium term . . . to establish that ‘I am a respectable person; I am not like that rabble-rouser, Krugman.’ . . .
Maybe. But, going back to 2009, I still suspect that Summers, or some part of Summers, feared that a big stimulus at the beginning of Obama’s first term would work all too well, leading to a 1978-style economic expansion followed by a 1980-style dive. I’m sure that Summers’s preferred outcome was steady economic growth, but given all the uncertainty involved, I wouldn’t be surprised if he preferred to err on the side of a lower stimulus to avoid overheating the economy.
My story does not contradict Krugman’s.
In both cases, Summers believes that productive deficit spending will stimulate the economy and help in fiscal terms (by the usual mechanism that more employment will lead to more goods and services, a higher tax base, etc.) My story just adds a political component: Summers in 2013 is some combination of public intellectual and business investor and is quite naturally in favor of economic growth right now. Summers in 2009 was working for and closely identified with the incoming administration, and I think his #1 priority was to make it a success, which in particular meant doing his best to assure economic growth, not over all four years, but in particular during 2012.
I’m not saying that Krugman is wrong in his attribution of a desire to respectability on Summers’s part. Indeed, I suspect Krugman had similar motivations several years ago when he disparaged John Kenneth Galbraith. But I think this all makes more sense when considering the political context.
[Originally posted at The Monkey Cage]