Saturday, July 31, 2010

Game, Set, and Match for Krugman and the Keynesians?

The US economic recovery seems to be stalling, and fears of a double-dip recession are on the rise (see here). No one wants that to happen, but if it does, the deficit hawks will never hear the end of it from Krugman and other pro-stimulus Keynesians, who will be able to say, with some legitimacy, "We told you so."

It's not that deficits don't matter. They just are not as important as the need for economic stimulus during a recession to spur slack demand. This is not to say that the government should be throwing money around willy-nilly. There's all kinds of spending, including in the Obama Stimulus bill from 2009, that has little if any stimulating effect. But it's not like we have a dearth of worthwhile infrastructure projects to fund in this country.

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