The Stimulus Wars Get Friendly

After weeks of argument, a consensus may be building

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To stimulate or not to stimulate: that's the question business and economic writers can't seem to agree on. One way to divide the opposing sides is into the Paul Krugman camp and the Niall Ferguson camp. Krugman, a Princeton economist and Nobel Prize-winner wants an additional stimulus to boost job growth and fend off another recession. Ferguson, a Harvard economic historian, says this kind of debt-fueled government spending will lead to high inflation or, even worse, default.

It seems unlikely that Krugman and Ferguson loyalists will ever concede to one other. But is there a middle way? The following pundits spent some time this week trying to find consensus between the two extremes.

  • Let's Be Pragmatic, writes David Brooks at The New York Times: "So you have your doubts, but you are practical. You want to do something. Too much debt could lead to national catastrophe. Too much austerity could lead to stagnation. Well, there's a few short-term things you can do. First, extend unemployment insurance; that's a foolish place to begin budget-balancing. Second, you need to mitigate the pain caused by the state governments that are slashing spending. You need a program modeled on Race to the Top. You will provide federal money now to states that pass responsible long-term budget plans that will reduce spending and pension commitments."
  • If Stimulus Is the Answer, Let's Make a Promise to Cutback, writes The Atlantic Wire's own Michael Kinsley:
[Krugman] may be right that this is no time to slam on the brakes and doing so could push us into a second recessionary "dip." But any promise by the Obama administration or the leaders of Congress or even (maybe I should say "especially") the Republicans in Congress to get serious about the deficit in just a couple of years is completely incredible. And none of these people have even made such a pledge in any serious way. To be serious would require a detailed list of policy changes--less spending, new revenue--certified by some credible agency such as the Congressional Budget Office as being sufficient to put the deficit on a steep downward path. We don't have to start doing it now, but we have to say now, in detail, how we're going to go about it. If we don't (and we apparently aren't going to), nobody will believe that we will ever bring the deficit under control. And expectations of endless deficits will fuel (justified) expectations of future inflation, which will hurt the economy just like insufficient stimulus now, if not worse.
  • Both Sides Have Something to Offer, writes Henry Blodget at Business Insider: "Where are we on this fight between Krugman (Keynesians) and Niall Ferguson, et al (who argue that our ballooning debts and deficits will kill us in the end)? In the middle. We think Krugman is right about the short-term impact 'austerity' will have on the global economy, and we never hear the Tea Party and other austerity pundits acknowledge that. At the same time, we don't think Krugman has yet offered a persuasive explanation for how we're going to climb out of the gigantic debt and spending hole we're digging without serious future pain. In short, we think the pain is unavoidable. It's just a question of what form it comes in and when."
  • I See a Consensus Building, writes Ezra Klein at The Washington Post: "If you actually look at their prescriptions, they are, in this case, similar. Krugman wants to see unemployment benefits extended. So, it turns out, does Brooks... Now it may be that a retrenchment to state and local aid and unemployment insurance represents a tremendous defeat for those of us who believe the economy needs further government help to get back on its feet. But getting passage of both -- and quickly -- would also mean it gets some of the most necessary, and quickly-usable, help that government can provide. If you can't do much more on stimulus, you can at least mitigate some of the pain and prevent some of the most predictable sources of economic contraction."
This article is from the archive of our partner The Wire.