Eric Martin has a rather scathing post about "Hoovernomics" in which he holds up Greece and Ireland as an indictment of those nasty, contractionary Republicans.
First of all, can we lay off Hoover? As you can see if you look at the historical OMB tables, Hoover boosted spending quite a lot (which is why FDR was able to run against him on a balanced budget platform). He boosted it even more as a percentage of GDP, because GDP had the bad taste to plummet while he was doing all this extra spending. You can argue that his stimulus was too small, but the popular myth that he slashed government in the face of a recession simply isn't true.
Second of all, the fact that Ireland and Greece are in the outer circles of economic hell does not "prove" that austerity is a bad idea. Both countries needed to do the austerity because their economies headed south; too many armchair economists have the causation running the wrong way.
Of course, one could argue that counterfactually, Ireland wouldn't be so badly off if it had done more stimulus and less austerity. But the reason that Ireland, and especially Greece, are doing these austerity plans is not that they're in the grip of some lunatic supply-siders; it's because they were finding it just a tad difficult to borrow money. A situation where Ireland ran out its credit lines until the word "declined" popped up on the cashier screen might well have been much, much worse.
Because recessions tend not to end the instant the government swings in with its policy response, any policy decision can be "proven" wrong by pointing out that the economy descended further into the mire after the policy response was enacted. This works just as well for the Obama stimulus as it does for Irish austerity. And it's no good arguing that this simply "proves" that the stimulus wasn't big enough, since one could argue the same thing for the Irish government; maybe if they'd slashed services and taxes, they'd already have recovered! (Indeed, perhaps they already have).
Or maybe this stuff is very complicated, the case for stimulus was never quite as strong as proponents believed, and much of the argument from both sides has more to do with a priori beliefs about the percentage of GDP that the government should control, rather than any deep economic certainty about the effect of borrowing and spending a whole bunch of money.
At the very least, I wish that those who believe that Ireland and Greece prove something important about American policy priorities would look at a few other European countries. Mostly, I'd like to hear why they think that Ireland and Greece are very relevant, but Germany is not. Germany did a comparatively tiny stimulus, and is now booming, while we are not. Tyler Cowen has done a yeoman's job of pointing out this apparent disparity, but few on the pro-stimulus side have stepped in to offer a convincing explanation.
We want to hear what you think about this article. Submit a letter to the editor or write to email@example.com.