Galston v Krugman

Bill Galston discusses deficits and debt in The US Is Not Too Big To Fail. I urge you to read it. He asks the right questions and draws the right conclusions.

[The] economic case for terminating key safety-net programs such as extended unemployment insurance is very weak, and the human case for continuing them is very strong...

[Setting] aside political constraints, it is not easy to decide whether we need another round of major economic stimulus to get the economy to the point of self-sustaining growth. It is facile to argue that all the risks lie on the side of inadequate stimulus...

What matters most is making a credible commitment -- through binding legislation that changes both programs and budget procedures -- to alter our long-term fiscal course before our debt enters the red zone...

This last point is consistent with arguing for additional short-term stimulus, and I agree with those who say this is necessary. The more credible the commitment to medium- and long-term fiscal consolidation, the more relaxed the US can be about further short-term action.

The earlier exchange with Paul Krugman which Galston refers to is worth reading. Krugman has set his face against "deficit crazies" -- meaning, I think, anybody who expresses concern about the long-term US fiscal position (Jeff Sachs, for instance, Raghuram Rajan, Paul Volcker: the list of idiots talking nonsense is long.)

In his curt dismissal of Galston, Krugman claims to have "refuted" the suggestion by Rogoff and Reinhart that high levels of debt retard growth. In fact Krugman merely expressed (plausible) doubts about the finding: to "refute" a study, even the all-knowing Krugman has to do more than ask a good question. He also tells Galston to go away and read Adam Posen on Japan. (Just do the reading. How many more times must he put these simpletons right?) As Galston points out, however, Posen recognizes that even a country like the US faces prudential limits on fiscal expansion.

I think Krugman is correct to argue against "fiscal austerity now now now", especially for the US. But Galston's view, as I say, is consistent with this. It's the long-term outlook they disagree about. I don't understand why Krugman won't more fully acknowledge the long-term problem. Why not give equal emphasis to the need for further short-term stimulus combined with tax increases and/or spending cuts later? Difficult to do, of course, but what is the objection in principle?

Perhaps Krugman believes that yielding ground on the long-term problem would weaken the case for stimulus now now now. If so, as a matter of political judgment, he is wrong. His blunt refusal to engage with the other side undermines his case. Or does he think there really is no long-term problem? Again and again he says that financial markets are not (yet) pushing US long-term rates higher, as though that is all you need to know. This would be an even weirder thing for him, of all people, to think. Markets know best? Sounds like those looney-tunes in Chicago.